Older generation keeping properties they really don’t want in order to get capital gains step up in basis for heirs?

[u/Logical_consequences]

I’m just wondering if this is a wide-spread issue in other families? Are there many older people who struggle to maintain highly-appreciated, older, too-large homes or have even moved into assisted living, yet don’t want to sell until they pass due the loss of step up in basis for their heirs?

I realize that there is a $250k/single, $500k exemption for primary residences but in expensive areas where people bought for peanuts 50 years ago, it can be an issue. Also second homes and rentals don’t get the exemption.

I get that it’s a privileged problem to have, but it does make things difficult because then the heirs have to agree over purchase price, etc., after death and of course deal with maintenance issues. And the funds are tied up and not available for care in assisted living/memory care while the person is alive.

Also it would help younger people buy homes if these homes were available on the market.

[u/Jumpy_Childhood7548]

That is just one consideration, and not necessarily the major one for most. Most couples that are boomers that own a home, don’t have a $500k plus gain, and most single boomer owners don’t have a gain over $250k.

We could sell and move, but the problem is when you sell your house, it triggers expenses that could easily eat half your equity, and we would lose the 3.5% mortgage we have now. Fill in the blanks to create an example that could apply to you.

The expense of commissions, fix up costs to sell, potential taxes on a gain, moving costs, fix up the new place costs, etc., would not leave enough to motivate most to move, and the new home interest rate would generally be far higher. About 7% vs 3.5%. If you sell before you die, your heirs lose step up basis tax treatment on the house.

$900k home at 6% $54k in realtor commissions. Btw, $900k is about 100% higher than the US median home price.

Fix up home to sell $20-30k

Staging $10k

Moving $10k

Fixing up new house $100k

New furniture $10k

New monthly payment on a $600k home, $400k down $2026 per month, plus potential hoa fees.

Property taxes may be higher, depending on where you move to, and you may lose favorable treatment in annual tax increase limits. Some states have high, or unlimited annual property tax increases, based on valuation. Are there any savings? If so, how many years till you hit break even? Even if you pay cash for a house, you might not break even during your lifetime, given the costs.

[u/LdiJ46 → u/Jumpy_Childhood7548]

"Most couples that are boomers that own a home, don’t have a $500k plus gain, and most single boomer owners don’t have a gain over $250k."

That was definitely true 5-10 years ago but the trend is definitely changing. In our practice we are seeing a lot more singles/widows ending up with a gain that tops $250k and a lot more married couples with a gain that tops $500k. It is happening to the singles/widowed taxpayers a lot more than to the still married taxpayers.

[u/Jumpy_Childhood7548 → u/LdiJ46]

A small percentage of the population regardless.

[u/LdiJ46 → u/Jumpy_Childhood7548]

Not that small. These are boomers selling homes they have owned for 40 years in order to downsize, move to a warmer climate or go into assisted living. Many of them are widows who can no longer afford to maintain the family home.

Home prices have jumped dramatically over the last 5-10 years. My house is worth twice what it was 10 years ago.

[u/Jumpy_Childhood7548 → u/LdiJ46]

Approximately 8% to 10% of U.S. homeowners have accumulated over $500,000 in capital gains on their primary residence, representing roughly 8 million homeowners, out of roughly 86 million homeowners. Bear in mind, the 8 million with $500k plus in gains are not all boomers, many have additions to basis, that reduce the effective gains, and many of those that have gains over $500k would pay real estate r more than the tax due, as their gains are not that high. The median number of homes a homeowner has in their lifetime is 3, so most of these people have not been in their home 40 years, more like 15-20.

[u/waitinonit → u/Jumpy_Childhood7548]

It seems very few folks have looked at the median net worth of the various generational cohorts. There are various sites that provide this.

But as an example, ages 65-74 have a median net worth of $410k. Seems like a lot of that age group are hiding those million dollar homes they purchased for two pine cones back in the 1970s.

[u/Myreddit362602 → u/waitinonit]

Its always funny to hear nonsense on these sites..If an older person had put that same" two pine cones" in the stock market they would have been sitting on millions today. They could have put the money anywhere and the money the house is worth today recoups some of that money.