How Proposed Changes Could Impact Home Sales

With home values soaring, many homeowners face significant capital gains taxes upon selling their homes. Current tax laws can deter homeowners from selling, contributing to a static housing market. This  delves into how proposed changes to these laws aim to encourage more homeowners to sell, potentially revitalizing the market.

The Burden of Rising Home Values

Impact of Increased Home Values on Taxes

Over the past few decades, the threshold for capital gains tax exemptions on home sales has remained unchanged, despite significant appreciation in home values. A report from CoreLogic highlights a sharp increase in homes selling with profits exceeding the $500,000 exemption limit, leading to hefty tax liabilities for many sellers.

Legislative Efforts to Stimulate the Market

The More Homes on the Market Act

In response to these challenges, the More Homes on the Market Act, proposed by U.S. Rep. Jimmy Panetta, seeks to double the capital gains exemption limits and index these to inflation. This change could significantly decrease the number of transactions subject to capital gains taxes, encouraging more homeowners to enter the market.

Evaluating the Proposed Changes

Benefits and Potential Drawbacks

By raising the exemption limits, the proposed bill could ease the tax burdens on homeowners, particularly older individuals looking to downsize. However, these changes could also lead to potential revenue losses for the government, which may impact public services and infrastructure funding. This addition provides a balanced view of the potential impacts of the legislation.

The State of the Market

Current Trends and Future Projections

Despite the apparent benefits, the bill's progression through Congress remains uncertain. Meanwhile, states like California continue to see a high percentage of home sales subject to capital gains taxes, underscoring the pressing need for tax reform in high-cost living areas.

Bottomline

The evolving landscape of home values and taxation presents both challenges and opportunities for homeowners. By adjusting to these changes and advocating for sensible tax reforms, we can foster a more dynamic and accessible housing market. If you're considering moving to Orange County and need guidance navigating these complexities, let's connect.

Reference: Griffith, Keith. "Capital Gains Taxes Box Homesellers Into a Corner—These States Are the Hardest Hit." Date: May 22, 2024.