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Do We Blame the Baby Boomers or the Tax Code for the Listing Shortage?

By
Real Estate Agent with RLAH@properties AB95346

Here in Washington, DC, we are seeing a shortage of listings like never before. Still, I know a lot of people who want to or ought to move, and most of them are my demographic - baby boomers living in houses that are way too big and needy to meet their current needs. There is, however, one big stumbling block that is stopping many of us in our tracks - capital gains taxes!

It seems like I'm sitting on a gold mine. A house I purchased back in the early 1980's for $125,000 is now worth more than ten times that amount. But if I sold it, I'd have to send a huge check to Uncle Sam. 

There used to be a capital gains exemption for people over 65 selling a primary residence, but that went away decades ago, now exempting all sellers, but only the first $500,000 in gains for a married couple and $250.000 for a single person. When I calculated my tax liability, I realized it was well over $200,000. 

Hmmm. Even though a marriage of convenience might help, it still makes aging in place pretty attractive.

But seriously, if we went back to the old tax deduction that gave elders a one-time exemption from capital gains taxes for a home sale, my guess is that a lot of older homeowners would find a downsize more attractive. When I do the math now, it makes sense to stay  put. DC has an extremely low property tax rate for seniors, and I have significant income from an accessory unit in my basement.  If I moved to a condo building I really love in Bethesda (in Maryland), my property taxes would quadruple, and I'd have a condo fee, with no rent from downstairs tenants.

Like most of the older homeowners I know, there are a lot of things I love about my current situation. My neighbors are amazing people, and I value highly the community we have formed. Also, there is a lot about my house that I love. It's roomy, great for entertaining and I don't have to worry about where to put the furniture and art. And there is plenty of room for my clothes and shoes. 

Oh! And I don't feel all that guilty about contributing to the shortage of housing inventory. Still, I think that I am one of many potential sellers who might be moved by 

Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

You make a very valid point Patricia Kennedy ! Why move..you have a good gig going!

Oct 17, 2023 06:52 PM
Paul S. Henderson, REALTOR®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

I have to concur with Dorie Dillard Austin TX, there is more than enough blame to go around. I had the same thing happen to me 🙃 

Oct 17, 2023 08:40 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

My first home was purchased in 1966.  The price was a mere $11,500.  It sold last year for $385,000.  I do think that part of the inventory shortage is due to higher interest rates.  A lot of folks are reluctant to move out of their existing homes, that have much lower interest rates in place.

Oct 17, 2023 09:14 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

CONGRATULATIONS Patricia, on having this blog FEATURED in the Old Farts Club group!  

Oct 17, 2023 09:23 PM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Patricia, this post really highlights the complexities that come with decision-making in later life, particularly concerning housing. While the financial aspects are undeniably significant, what strikes a chord is the emotional and community ties you've described. Downsizing or relocating isn't merely about the numbers; it's about assessing the quality of life, social connections, and the comfort of familiarity. Your perspective offers a genuine insight into why many baby boomers might opt to age in place despite the apparent 'gold mine.' It's essential to remember that every stage of life presents unique challenges and motivations, and sometimes, the human elements outweigh financial incentives. Thank you for sharing such a personal and thought-provoking piece

Oct 18, 2023 03:10 AM
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Let's see ... who to blame for crippling tax codes that cause economic disincentives?  Um, wait, it'll come to me.

Oct 18, 2023 04:28 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

I love your suggestion, Patricia! That being said, as an early baby boomer I downsized 18 years ago from a 6,000 sf home to a 3,300 sf home and for now not looking to downsize further. Maybe by the time I do, your suggestion will be the law!

Oct 18, 2023 05:43 AM
Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Pat - whatever activity is being played it seems finger-pointing is required to participate.  Let the games continue as well as discussions of the reasons for the lack of real estate inventory for sale. Pass "Go" and proceed with caution. . .  

Oct 18, 2023 06:41 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Patricia Kennedy capital gains is a reason, but I think a bigger reason is the lack of inventory.  Homeowners that are ready to put their homes on the market are afraid to do so, because they fear they will not be able to have their offer accepted on another home.

Oct 18, 2023 03:21 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Patricia, 

What an interesting perspective. I usually wouldn't think of this until it pertains to me or a client.  Twenty years ago, I did as many people buying in Sedona do.  I purchased a second home.  When we retired from the corporate world, I sold my California home, which was much larger than my Sedona home.  It is the perfect size. 

The answer is truly complex.  Besides capital gains, for some, the property tax may be higher with a new purchase, even with downsizing.   As George Souto stated, there is also a fear of not finding another property. 

Many baby boomers with family may pass it to a family member in a trust after they pass on, keeping the property in the family.

Oct 19, 2023 10:37 AM
Roy Kelley
Retired - Gaithersburg, MD

Home sellers do need to be aware of the tax consequences. And those who are not married need to be especially alert.

Dolores and I are among the seniors who should downsize.

Oct 23, 2023 08:21 AM
Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

Hi Patricia Kennedy I downsized my home a while back and I absolutely love it. In fact, many of my clients are people who are considering downsizing as well. I assist them in overcoming the challenges that come with this transition because it's not an easy one. However, once it's done, it's truly wonderful. Especially when you see your first utility bills after the move. It's great to have you back.

Oct 23, 2023 01:41 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

That's a good point. I'm sure you are not alone in realizing that capital gains can keep you in your current location. And the property tax jump for moving is another!

Oct 28, 2023 05:13 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Patricia and what a great blog to ponder with us here in the Rain.  Glad to see you back here in the Rain.

 

Oct 28, 2023 09:15 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Patricia, your home values are much higher than Denver's, but can see many families in this position.   Hope the tax laws change in the near future for those going into retirement.

Nov 10, 2023 08:59 AM
Joyce Marsh
Joyce Marsh Real Estate LLC - Daytona Beach, FL
Joyce Marsh Homes

Good point, and Capital gains is one issue but another is lack of inventory of smaller homes to move in to.

Feb 03, 2024 08:07 PM
Roy Kelley
Retired - Gaithersburg, MD

I hope all is going well for you. 

Have a very productive spring.

Mar 08, 2024 07:30 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Pat - very very good suggestion - maybe someone smart will see this post in Congress and figure out what to do

Apr 03, 2024 10:55 AM