? regarding home sale profit

[palomalou]

Now, needless to say, we will not have a profit when we sell our present house, rather a loss. But say we live in our retirement condo for 30 years--assuming taxes do not change, which I know they will--would we still be limited to the $500K profit before taxes ensued? Even though that same number might apply to someone who owned their home for 6 years? Is there no inflation figured in?

[MichaelB]

Quote:

Originally Posted by palomalou Now, needless to say, we will not have a profit when we sell our present house, rather a loss. But say we live in our retirement condo for 30 years--assuming taxes do not change, which I know they will--would we still be limited to the $500K profit before taxes ensued? Even though that same number might apply to someone who owned their home for 6 years? Is there no inflation figured in?

Under current tax law inflation is not considered. In 30 years it's bound to be different.

[palomalou]

So someone would be well advised to change houses periodically rather than keeping one?

[MichaelB]

Quote:

Originally Posted by palomalou So someone would be well advised to change houses periodically rather than keeping one?

Fees and commissions involved in buying and selling would probably be more than tax. An example - a $400k house triples in price over 30 years. That is around 3 1/2% appreciation per year, slightly higher than the inflation rate. In 30 years the house is worth $1200k. When sold, using current tax law, there would be profit of $800k, less an exemption of $500k, net taxable gain of $300k. The capital gain rate is 15%, so tax would be $45k. You would probaly pay a similar amount in fees and real estate commissions selling the house once and buying another.

[LOL!]

If your business is building houses, then you should live in your self-built house for a couple of years while it goes up in price, then sell it. Rinse and repeat.

Just about every builder that I have heard of does exactly this.

[pb4uski]

Quote:

Originally Posted by palomalou So someone would be well advised to change houses periodically rather than keeping one?

Or better yet, keep track of your basis and an eye on home prices and consider a change when the current value ~ your basis + the exemption amount (currently $500k).

[Animorph]

I tried, not very hard, to convince DW we should sell our house and buy something else when our gain reached $500k in 2007. Probably would have been a big win if we had rented for a few years after that. But she said no way. Now we're comfortably below the exclusion. 15% tax on $500k (CG that would be excluded on a new house) is $75k (20% CG tax would be $100k), so I guess sales and moving costs would have to be below that.