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.
If it was just a problem of paying more taxes then the argument would be bullshit. The main problem is buried at the end of the article:
This is the real reason they are not moving. They would be stepping backwards financially instead of stepping forward.
Feels like the crux of this whole thing is that housing shouldn’t be an investment.
Good luck changing that. Housing has been a promised vehicle for wealth growth to multiple generations.
Or build more apartments maybe? The entire housing crisis in the US could be easily solved by adding sufficient apartments in the right places.
… What’s the issue?
They paid for the next place, including fees, and still have $50k in their pocket? How greedy does someone need to be, exactly, before we consider the behavior repugnant?
The issue is that they sold a large home and bought a small home and had very little money left over. It doesn’t make financial political sense to do that. They might as well stay where they are. There is little incentive to downsize.
Part of the solution to the housing crisis is solving that incentive problem.
Aww, poor them. They only had enough left over to pay fully for their next place and pocket $50k.
As long as you ignore property taxes and maintenance costs. Which normal people don’t ignore.
Maintenance costs are probably fairly minimal given how little wear and tear happens in an empty nest. And property taxes for elderly folks are usually frozen or nearly frozen in place - meaning the next buyer will be paying a much higher tax on the same house because they won’t qualify for those exemptions.
It seems like you don’t own a home, so I’m not sure there’s much point in continuing this conversation.
To the contrary - I own a large home in an urban area and it is filled with my children. But we don’t have to have a conversation - I was only pointing out the flaws in your logic. My tax bill will be $12k this year while my elderly next door neighbor’s will be a fraction of that. Our homes are identical (3k sqft over 3 floors). She’s not leaving because it would make little financial sense to do so. This is quite common.
Sounds like one of those people that doesn’t take a raise because it’ll put them in a new tax bracket. People that don’t know how the adult world works.
The have their new property paid for and also have a much smaller property tax bill and lower maintenance costs. There’s still plenty of incentive to downsize.
Paying taxes on profit might hurt a little, but it’s a good problem to have.
What? They would have a much bigger property tax bill
If their smaller new house is worth less than their original the property tax bill will be less. This is one of the incentives to downsizing.
That’s not how property taxes work in California. They’re likely paying way less than they would be if they bought a new house, even if it was smaller
Condos generally aren’t much cheaper than houses. They would have the same issue if their region’s real estate was half as expensive. They would have had this problem 10, 20, 30 years ago if they were retiring. If you sell a house in an expensive area and want money left over, you either have to choose a shittier house/apartment to live, or a cheaper area.
Their home is worth 2mil. They absolutely would not be stepping backward.
It’s a ridiculous scenario considering the real value of their home. They might as well have invented a scenario where these people only get $100k for their 3000sqft, 5 bedroom home and then have to pay $2M for a one bedroom condo on the bad side of town.
That’s a fictional scenario, though. Why would an entire house be selling for the same price as a tiny condo with HOA fees? These people have a huge house worth millions of dollars, so I’m confused why they would use a $500k sale price in their hypothetical scenario.
Sure those are made up numbers but they illustrate a real issue. Where i live, and I’m sure other high cost of living areas, it’s the land that’s expensive, in short supply. The actual house might be a much smaller part of that.
What that turns into is prices may be insane, but a house isn’t much more than a condo isn’t much more than a vacant lot. Then when you buy, taxes are reset to the new value, so property taxes will now be much higher and realtors commission will be insane. So they need to take a mortgage and take a cost of living hit on the taxes, then are clobbered by high interest. They may literally not be able to afford to downsize