After 33 years and four children, Baby Boomers Marta and Octavian Dragos say they feel trapped in what was once their dream home in El Cerrito, California.

Both over 70, the Dragos are empty nesters, and like many of their generation, they’re trying to figure out how to downsize from their 3,000-square-foot, five-bedroom home.

“We are here in a huge house with no family nearby, trying to make a wise decision, both financially and for our well-being,” said Dragos, a retired teacher.

But selling and downsizing isn’t easy, appealing or even financially advantageous for many homeowners like the Dragos family.

Many Boomers whose homes have surged in value now face massive capital gains tax bills when they sell. This is a kind of tax on the profit you make when selling an investment or an asset, like a home, that has increased in value.

Plus, smaller homes or apartments in the neighborhoods they’ve come to love are rare. And with current prices and mortgage rates so high, there is often a negligible cost difference between their current home and a smaller one.

  • PugJesus@kbin.social
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    11 months ago

    If you only paid $100,000 and you made $1,000,000; you’d have $900,000 profit; of which you’d probably only see ~60% to ~40% of, if Capital Gains taxes are anything near what I think they are. If we assume a “worst case”, where the Federal Government takes 40% and the State takes about 20% more, that means your tidy profit is only about $390,000. That means you’ve probably got to secure another $140,000 in financing on average to pick up a more modest $500,000 home (in today’s market) to retire in.

    Capital gains taxes range from 0-20% Federally, depending on your income. In Cali, the addition is up to 13%

    Which means that worst case scenario, you sell a property in Cali, you would pay 33% of the profiit above the original price of the house and the 500,000 exemption. So on a house you bought for 100,000 and sold for 1,000,000, you’d pay the awful, awful price of… 133,000, leaving you with a paltry $867,000.

    • Melody Fwygon
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      11 months ago

      Ah; but did you forget you pay income tax on top of capital gains taxes?