Editor,

We continue to hear about the housing shortage due to the ongoing demand, which in turn is due to our robust job market and mild weather.

We need to remember that for every person screaming into one ear of our elected officials about more housing there is someone else screaming into the other ear to stop the building; that they are ruining their lifestyle and the environment. So here is a suggestion to create more available housing without building. There are many seniors living in homes they have owned for decades. They would like to downsize or move elsewhere but would incur significant capital gains taxes if they sell (even more significant if Biden gets his way). To avoid these taxes they feel compelled to stay in the house until they die.

If the powers that be eliminated capital gains taxes on primary residences then these folks could move out, opening up housing opportunities for others. But what about the revenue lost without those taxes? I believe it would be made up from the increase in property taxes. Thanks to Proposition 13, many of these seniors are paying a couple of thousand dollars in property taxes, which would likely increase 10-fold with a new owner. Yes, capital gains and property taxes are different buckets but the idea deserves consideration.

Steven Howard

Redwood City

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(2) comments

Seema

It would be great to understand what barriers seniors and "empty nesters" face when considering downsizing - perhaps a local organization could conduct a community survey?

Thinking through a hypothetical example, suppose a senior purchased their (paid off) home in 1970 for $150K. It's now worth $3M. If I'm doing the math correctly, they would pay 20% capital gains tax on ($2.85M - $500K) profit, which would leave them with $2.38M in hand to purchase a new downsized residence.

You are suggesting that rather than pay ~$470K in capital gains tax, and still walk away with $2.38M in profit, seniors would rather remain in an oversized home? (They can transfer the Prop 13 Base Year Value of their old property so they don't have to worry about their property taxes increasing if they buy a new market rate residence.)

I would guess that availability of small, ground floor residences with easy access to goods and services would be a larger barrier. A local study could help verify or disprove these theories.

Terence Y

Mr. Howard – interesting proposition. Folks moving from a higher priced area to a lower home price area may take advantage and free up some housing stock. For folks looking to downsize but stay in the local area, the advantages may disappear since they’ll need to buy a house, at increased cost with increased property taxes, possibly negating their net gain. That being said, I’d agree that this capital gains tax waiver should still be added as an option – there really isn’t a downside, except for a wasteful spending government (which is what will likely put the kibosh on your idea).

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