Tomorrow is Tax Day 2023. If you own the house or apartment you live in, you will benefit from being able to deduct part of your property taxes and mortgage interest on your tax return. But while this popular deduction will save you money while you own your home, if you are planning to sell a place you’ve lived in for a long time, you could find yourself in a tax shock situation.
I’m a great example of this. In the 1980’s, I bought the house I still live in. At the time, my new home was in a neighborhood that was a lot less chic and trendy than Cleveland Park or Chevy Chase, which made it affordable. About a month after I moved in, Senator Rockefeller and his wife, Sharon, bought a multi-acre estate a few blocks away, and suddenly we began to move up the chic and trendy ladder, along with huge price appreciation throughout the neighborhood. But if I wanted to sell it today, I would have to write $200,000 check to the IRS to pay capital gains taxes.
When I consider whether or when I’d like to move, the tax consequences play a huge part in my decision. And I know a lot of people are not going to have a whole lot of sympathy for me – it’s not an awful problem to have, after all.
But here’s the thing. When I bought my house, you got one tax free sale if you waited until you were at least 65 to sell your primary residence. That’s not the case any more.
One consequence of the current tax structure is that a lot of senior citizens are living, often alone, in the big old houses where they raised their families. And as the care and feeding of This Old House starts to become more than they’d like to handle, the tax consequences of selling makes them hesitate before they pick up the phone and call me.
I’ve found that it usually takes some sort of a health crisis to force a decision. And often it involves getting to a point where the kids have taken away your car keys or climbing up and down stairs several times a day becomes problematic.
In the meantime, we are facing a major crisis in the availability of single family home inventory. Considering the following numbers for the week of April 5th to the 12th here is DC:
- For every RLAH listing that sold during this period, there were an average of 3.75 offers.
- Only 42% of the had home inspection contingencies, and 33% of the buyers got no home inspection at all.
- Half of the homes sold over the list price.
This isn’t even close to a balanced market.
If we could get people like me off the dime, it could increase the number of homes for sale, and while I doubt that we would find ourselves in a buyers’ market as a result, our housing scene could become a little less crazy than it is right now.