All Forum Posts by: Brian J Allen

@James Hamling Perhaps I am too lengthy in my response.  I believe the government needs to get out of housing and let things be as they may.  

The issues are not caused by the 80 year old lady, she is just acting rationally based on the information provided to her. Most of the issues that we see are caused by intervention by the government.  By the government trying to "nudge" us to do certain things.  They may be good intentioned, but good intentions do not necessarily create good outcomes.

My mom derives great pleasure from having the choice to keep her big house and look out at the water.  But she gets greater pleasure by not paying the taxes.

I do not champion anything.  I am simply pointing out that the government and its tax code has caused these issues.  I don't think additional changes will make things better.  

@James Hamling I feel you on this.  I still believe in my premise that taxes are Limiting Housing Inventory.  I will try to flesh this out a bit.  First, my mom lives in a 6BR 3 BA house with 1 person.  I realize if she "downsizes" that is a 1 to 1 with a net zero increase in supply.  However, as you mention we need more supply.  As you are likely aware it is much easier to produce small houses on small lots then larger houses.  You likely also agree that builders would rather build a big house then a small house as they typically make more money.  

Imagine that there is now an increase in the supply of big houses, builders would likely turn to building something else say smaller houses.  Is this good, or is this bad?  The reality is that 1 generation ago it was easier to trade up and trade down in house size in the same community.  That is not as easy to do anymore.  Many communities see folks tear down the small houses, and replace them with larger ones, as it is ultimately the land that has the value no necessarily the house.

I'm sure we could go much deeper into this scenario, and maybe get more good ideas, but the reality is that every time grandma stays in a large house by herself, and a family looks for a bigger house that is not there, the market says to build bigger houses. 

If grandma had a good place to go, maybe a small house village, over 55 community in the same town/area, it frees up those existing larger houses for those who need(loaded word)/desire them.

But the way the market has gone, people see the leverage they can get on the big house and decide to buy the most expensive house they can buy (say $1mm) because a 10% annual increase on $1mm is much more than 10% increase on $500k (the size house they may have been happy with).  

It is time for houses to be houses, but they are seen by many(most) as an investment vehicle.

More to come

@John Clark I hear you, and i think the tax laws are all messed up and they have created perverse incentives for folks.  There is talk to increase this "tax loophole" is that good or bad?  Perhaps we should stop incentivizing home ownership, perhaps not.  I think just like any other tax policy it makes people do odd things.  Should we have the 1031 exemption either?  Should we be able to deduct the interest on our houses and second homes?  Should we be able to take depreciation on an asset that is likely going up in value?  Maybe it is time to re-evaluate these breaks, as I do think they are having an adverse impact both on the housing market in general, and the young as well.  Many of you out there who have kids are likely saying you need to get more houses for your kids, since it is so hard for them to get them for themselves.  Another sob story in Boston if you make $400k and want to get a $1mm house you end up with an 1600 SF 3 BR 1 BA 1960s house with no renovations if you want to be less than a 35 minute drive to work.  But you can make $400k!  So what do these folks do?  Sometimes they buy a much more expensive house then they can afford(why not) and that "takes away the cheaper houses from those who don't make as much money".  Not sure if it is right or wrong, but it is the cards that we have been dealt, and people are playing the game with the rules they are given until they change.

@Don Konipol sadly the taxes are quite burdensome in MA, need to find my next landing spot, still waiting for my kids to settle down, right now i have NJ, MD and FL, we will see where we end up.  For the normal people out there, the key is to keep track of all improvements on your primary so you have a higher basis.  

Most states are taxing the CAP Gains as income for another 5%, then you have millionaires tax in MA as well. And then there is the Obamacare tax. The actual tax amount is often not the issue, it is the principal. These are folks who have never had a $50k annual tax bill, so this is unbearable for them. Also, many have pensions and have never even touched their nest egg.

@Stetson Oates @Henry Clark @Chris Seveney @John Clark. Don't get me wrong but I agree with you about selling.  The logical thing is to sell.  But as @Stetson Oates mentions they get hung up on the taxes.  The logical thing sometimes does not enter their mind.  Lower taxes, Lower maintenance, lower utility costs, less cleaning.  These should all get factored in but often don't.  My mom has a $2mm house with a $150k basis and lives in 1 room with no heat and eats rice.  She could easily sell and pay $2k a month in a rental and live a better life, but she has some idea that the kids and grandkids might come 1 X a year and then having a 6 BR house would make them come more often.  Sadly we as Americans over consume housing, then are not able to transfer to less.  The lucky ones oddly enough in this scenario are those who take multiple steps(houses) to get to the big house, as they have a larger cost basis then those who bought the big house in the nice town at the beginning. When is the optimum time to leave the big house(no pun intended) and downsize?  Does anyone have that answer?

I agree with the concepts but the tax law makes people do strange things.  If you are going to pay $250k in taxes, many older people will rent their primary, and not sell, then rent somewhere else you can rent at $2k a month for 10 years on what you would pay in taxes.  Then die and leave the house to your heirs tax free

The states try to protect older folks but end up handcuffing them

There has been growing discussion about how capital gains tax laws are reducing the inventory of homes available for sale in high-appreciation areas. Specifically, homeowners who have lived in their properties for many years may find themselves financially disincentivized from selling due to the tax implications of their appreciated home values.

Consider the following example: A homeowner purchased a house 20 years ago for $250,000. Over time, the home has appreciated to $1.5 million. The homeowner, now older and living alone after the passing of a spouse, would like to downsize to a smaller home or condo that better suits their needs. However, upon selling, they would face a $1.25 million capital gain. Current tax law allows an individual to exclude $250,000 of that gain if they have lived in the home for at least two of the past five years, leaving them with a $1 million taxable gain. With a retirement and Social Security income of $65,000, they could owe approximately $260,000 in long-term capital gains taxes.

By contrast, if that same homeowner had moved every five years, upgrading to a larger home along the way, they would now own a property worth $1 million instead. Their capital gain would be reduced to $500,000, and after the same $250,000 exemption, they would only owe taxes on a $250,000 gain—resulting in a significantly lower tax bill of roughly $55,000.

This discrepancy effectively punishes long-term homeowners who have remained in their properties, disproportionately affecting those who may now find their homes unsuitable due to aging, changing lifestyle needs, or financial strain.

The capital gains tax exemption of $250,000 per person ($500,000 for married couples) has remained unchanged since 1997. If adjusted for inflation, that $500,000 exemption would be approximately $985,000 today. Increasing this threshold would likely encourage more longtime homeowners to sell, freeing up inventory in a housing market that is already struggling with supply shortages.

Revising this outdated exemption would not only provide financial relief to those who need to transition to more suitable housing but also help ease housing shortages by making more homes available to younger buyers. A simple policy update could have a profound effect on housing mobility and affordability, benefiting homeowners and prospective buyers alike.