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.
You can actually deduct the cost of any improvements you’ve made to the home. You can’t do much about inflation costs, but are you really arguing that it’s bad to only receive 85% of free money rather than 0% by not selling?
Except you aren’t just selling. You also have to buy. And if from the tax and high housing prices it’s a wash to downsize, there’s not nearly the incentive to.
High housing prices also mean a high selling price for you too and taxes being percentage based means there’s never a scenario where you wind up with less money than you would from selling a smaller, cheaper house because regardless of where you are, bigger houses sell for a lot more than smaller houses. The only scenario where this makes sense is if you sold a large home in a place like rural Oklahoma and moved to a shoebox in San Francisco, but that’s not what’s being described in the article.
You’ve missed the point. People are breaking even downsizing. That’ll mean they won’t. It goes over this in detail in the article.