Quote from @Bruce Woodruff:
Quote from @Becca F.:
Really interesting discussion. I didn't know the $250,000/$500,000 capital gains exclusion has remain unchanged since 1997.
More specific to California, as far as older people (boomers) moving out of their homes so younger people can move in, I don't think that's the major reason, capital gains tax (of people I've talked to so obviously I don't know millions of people in CA). Ex: Someone bought a home in the Bay Area for $50,000 in 1970 and now it's worth $2 million. Many of them that I know don't want to leave a familiar area that they've lived in for 40 to 50+ years and move out of state or elsewhere in CA. These were middle class people when they bought. I haven't talked to any older person in a rush to move to Arizona, Florida etc out of the Bay Area although there probably are many of them.
Despite all the "California has high state income taxes, high cost living etc" if you have a paid off property, low property taxes, a retired person with low expenses, a decent pension, retirement savings and a little Social Security can live a comfortable life here. Our health care is rated B.
https://medicareguide.com/best-states-for-elderly-healthcare...
For the people buying homes currently it's mostly high income earners especially tech people paying $1.5 to $3 million for SFH and they will bid up on a desirable home especially on the Peninsula/Silicon Valley. Those price ranges are much too high for anyone with a lower salary such as retail workers, teachers, etc. We have state programs and private programs (they get part of your equity though) to help first time home buyers.
Separate from the capital gains tax issue is CA's low property taxes from Prop. 18. Before heirs could inherit the parent's property tax basis on the parent's primary home and for additional properties they're exempted the first $1million value of the home. (Ex: House A market value is $2 million but child is paying $2000 property tax based on parent's $110,000 assessed value but market value is $1.8 million). And recent Prop. 19 passed in 2020. This did away with that unless the child moves into the parent's primary home but it allows seniors (or severely disabled or a natural disaster victim) to transfer their low property tax basis to buy a new home elsewhere in CA. I didn't vote for Prop 19 - there have been efforts to repeal it. Now I have to do some maneuvering of my estate so my kids aren't hit with a massive property tax increase when I die.
https://abioproperties.com/market-news-trends/californias-pr....
There's unfairness everywhere depending on who you talk to. We can't make everyone happy.
What are people's thoughts about raising the capital gains exemption to $500,000/$1 million?
"Separate from the capital gains tax issue is CA's low property taxes"
Cali does not have low property taxes. They are ranked 33rd out of 50 states. People think that Prop13 made the tax rate low....it just made it not as high as it was..... :-)
The rate is low for people who have owned for decades or in 2008 but true, for newer homeowners and investors it's not. CA state median property tax of 1.21% For San Francisco it's 1.178% (rounded up all those decimals), San Jose 1.46%. Not sure what other states' property tax rates are and how they re-assess values or how often (I just know Nevada and Arizona rates are on lower side, Texas higher).
Ex: Home A long time owner is paying $2000 a year with an assessed value of $110,000. There was a"like in kind renovation" with permits pulled, replaced old plumbing, electrical, new cabinets, floors, etc, no added bedrooms or bathrooms, no ADU. This renovation could conceivably cause the assessed value to go up but not go up 10 times, up to the Assessor's office. Appraised value of $1.7 million post-renovation. Home B recently purchased in 2024 is paying $24,000 on assessed value of $2 million (to be fair their renovations are higher end) since the value re-sets upon purchase/closing. Homes are comparable square footage and the same model.
House C sold in 2018 (a little smaller than the other two but on same street) for $1.8 million property taxes are $21,000. Previous owner was paying $11,000 property tax on assessed value of $977,000. There appeared to be some significant renovation done in 2013 causing a 22% increase in assessed value and another increase in 2007 (assessed value went from $291,000 to $830,000 so 187% increase from 2006 to 2007). I'm not sure how the Great Financial Crisis of 2008 affected assessed values since home values dropped significantly if someone bought during the 2007 to 2009 time frame.
I walked all 3 homes and know the owners of House A and C (but not the previous owners of House C back in 2013 and 2006). Yes it's unfair that owner A is paying significantly less property taxes than owners B and C but that's from Prop. 13 and the assessed value increase goes up max 2% a year if there are no significant renovations done causing a re-assessment.
I will start a Prop 13 and Prop 19 thread in the Tax, SDIRA & Cost Seg forum, gathering my information and sources.
