San Francisco Chronicle, Where Capital Gains Tax Slows Home Sales and Drives Up Prices:
Real estate agents say the fear of capital gains tax is preventing many homeowners with huge gains from selling. Even if you have no sympathy for these folks, they are one of the reasons for the low inventory of homes for sale, which is helping drive up prices. In San Francisco, the number of homes on the market in January has fallen every year since at least 2011, when it was 1,606. This January it was 584, according to Paragon Real Estate Group.
To see where taxes could be discouraging sales, The Chronicle asked Zillow to estimate how many Bay Area homeowners would owe capital gains tax if they sold their homes. … [I]n San Francisco, San Mateo, Alameda, Contra Costa, Marin and Santa Clara counties combined, 62 percent of homes are worth at least $250,000 more than their last recorded sales price, and 36 percent have risen by at least $500,000. Going a little over those limits might not discourage a sale — but going a lot over might.
So Zillow looked further and found that 12 percent of homes have gains exceeding $1 million and 5 percent have appreciated by at least $1.5 million. In seven ZIP codes, more than 50 percent of homes had gains over $1.5 million. They were in Atherton, Palo Alto, Stanford, Portola Valley, Los Altos and Los Altos Hills.
The federal government taxes home-sales profit over the $250,000/$500,000 limit at rates up to 23.8 percent. California taxes capital gains the same as ordinary income, at rates up to 13.3 percent. Having a large capital gain could also trigger the alternative minimum tax and reduce your exemptions and deductions, San Francisco CPA Richard Pon said. … Another deterrent: Many long-term homeowners could face a property tax increase if they sold and bought another, unless they qualify for an exception. … Rather than sell and pay tax, some older homeowners are waiting until they or their spouse passes away. “Death solves so many problems,” said Palo Alto Realtor Ken DeLeon.
(Hat Tip: Keith Jarett.)
