Michael Edlen: Homeowners Feel Held Hostage by Taxes

By Michael Edlen
Special to the Palisades News

Each month, my team and I provide complimentary local home value estimates for nearly a dozen homeowners.

Many of these owners just want a rough idea of value as part of their overall financial picture for future plans. Others are simply curious what their home might be worth now. However, at least a few are seriously considering selling their homes, so they can move closer to family or buy a place that will be easier to live in and maintain.

After reviewing various alternatives and different courses of action, I am often told that their decision is to not sell the property because of the tax consequences.

These owners decide they would rather continue living in a home that is no longer suitable for them, primarily to avoid paying taxes of approximately 25 percent of the capital gains that would be due in the following tax year.

The decision to not sell is often related to their desire to retain as much after-tax equity in the home for their children to inherit, which would then give the heirs a “stepped-up” basis for capital gains purposes in the future.

Michael Edlen

One consequence of this decision is they may have nearly all of their financial net worth tied up in that property and see few
options for ways to free up some of that value to provide liquidity to cover increasing daily expenses and “luxuries” like travel.

Some people have told me that they feel “house rich” and everything else poor.

Whenever possible, I like to point out alternative solutions to doing a “reverse mortgage” or to taking no action when a
time comes that cash is needed.

I also suggest that many owners in this situation do the math and consider that over the last five years, their home value has probably increased by 40 percent, an amount greater than the probable taxes that might be due if they were to sell their property.

The current tax codes allow for an exemption of $250,000-$500,000 against the capital gains from selling a home, and most
people are aware that the tax rate for capital gains is lower than it once was, but could increase in the future.

It is unfortunate how often a decision is made based primarily on tax consequences rather than financial needs or personal
lifestyle preferences, since there are other ways to view and approach the various factors involved.

That being said, it is always wise to consult with one’s tax adviser to better understand all of the issues that may pertain to
the family’s specific situation.

Michael Edlen is ranked as one of the top agents in the country and has provided counseling to nearly 2,000 owners. For more information, call 310-230-7373 or email michael@michaeledlen.com.

in Uncategorized
Related Posts
Leave a Reply