Is Capital Gains holding you back from Selling?


For those who may not be aware... When you sell a house for more than what you paid for it, you could be subject to a capital gains tax on the profit you make from the sale.

Generally, people who qualify for the home sale capital gain exclusion can exclude:

  • $250,000 of capital gains if single.
  • $500,000 of capital gains if married and filing jointly.

This exemption is formally called the Section 121 exclusion with the IRS.

So if you bought a house in Lake Forest for $500,000 and let's say it is now worth $3,000,000. You would have a gain for $2.500,000 - $500,000 for married couples.. now your gain would be $2,000,000. Which becomes taxable income.

2,000,000 x 20% (tax rate) = $400,000 in Capital Gain Tax 😲

This is happening all over Orange County and other high cost areas and one of the reasons why "Baby Boomers" are not moving and deciding to age in place.

If this is you... there a couple of things you can do to defer your tax gain. Of course we recommend speaking with a Tax accountant, but two such programs to look into are a 1031 Exchange or Spendthrift Complex Trust. Both provide provisions that allow you to defer the gain.

But what if simply want to downsize and keep your profit.. Should your gain be Taxed as income? Well that's a whole other story... I am all for less taxes! We are already paying the state property taxes.. why is there an additional tax on gains... 🤔

Here is a bit of news... Right now in Congress is HR1321 More Homes on the Market Act.

Which is designed to increase of exclusion of gain from the sale of principal residence taking the $250K exclusion to $500k and the $500k exclusion to $1,000,000 as an adjustment for inflation.

This would be helpful but in high cost areas, there would still be huge tax consequences. And just a side note, why do singles/widows have less. 😜

👉So back to my original question.. Is paying Capital Gains holding you back from selling? Follow me over on Instagram of Facebook, I have a survey going on this question.

If you want HR1321 to pass, it needs to get pushed up the latter was introduced in 3/23 and is sitting!

Looking for more information on 1031 exchange or the Trust mentioned above, don't hesitate to reach out to Kelly direct.


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