? 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]

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]

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]

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.