Awww poor baby. You’ve made more than $500K, much of which will be untaxed, simply by owning a house. Jesus fucking Christ. Cry me a river. Most people would trade their arm in for that kind of leveraged gain.
Nope! This is all speculative until you need to "sell & move". If you want to move to another place in the same area, guess what, you've probably made nothing. With all the taxes and fees that you have to pay on the sale price you can't buy the equivalent of your house. You can only capitalize on that appreciation if you move somewhere considerably cheaper.
Not only that, the owner faces higher (in some cases much higher) property taxes due to increasing house prices, which is totally out of their control.
I'm not suggesting that they're in a bad spot. It's just not the "jackpot" that your post is suggesting.
So why on earth would someone want to sell their house and buy an equivalent house in the same area...?
Friend of mine bought a house he and his wife loved. Five years later he came to understand what owning a Dr Horton house means, and they wanted a better-built house.
But a lot of this is true with moving generally when you're living somewhere that's OK but isn't really optimal for you any longer.
Quite possibly, yes.
Let's plug in some plausible numbers. Say someone buys a 3-bedroom house for $300k (they have kids). At the same time, 1-bedroom houses sell for $200k.
Time passes, the kids grow up and move out. Say house prices didn't change at all. You sell for $300k, buy for $200k, pay some agent fees, have $85k or so left over.
Now say prices went up and the 3-bedroom house is $1,500,000. You sell, have a $1.2e6 capital gain. $500k is deductible, you pay taxes on the remaining $700k. That's taxed at 20% federal plus the ACA 3.8% investment income tax (because your income is way over that boundary) plus state capital gains taxes. In California, capital gains are taxed the same as other income, at first glance; let's be charitable and assume you avoid the higher tax brackets (12.3%) and get taxed at an effective 10% here. That's 33.8% tax. So your after-tax sale proceeds are $500k + 0.662*$700k = $963k.
Note that your house went up in price by 5x. If the smaller one did too, it costs $1 million and you can't pay for it anymore. If it went up by more than that (e.g. if the primary inflation was in land prices, which it often is) you might be even more in the hole.
Things are even worse if you're trying to sell and buy something equivalent instead of downsizing.
Gains greater than 500k are extremely rare outside of certain overly restrictively zoned areas.
Of course all that assumes that you're not leveraged at all (paid-off morgage). If you're leveraged, price increases are generally a win even in the face of capital gains taxes on the increase.
Discourse shouldn't be baselessly disrespectful, sure.
But the robotic, tsk tsk, shaming attitude that gets thrown around on forums whenever someone expresses any negative emotion gets old too.
In any case, complaining about having to pay capital gains tax on gains OVER $500k really is the ultimate first world, privileged problem.
If I were talking to lisper over a beer, I'd probably smile and say that that problem is one that 99% of the world's population would love to have, or something to that effect. Or maybe without the smile and straight to the point "complaining about profits so high that you're getting taxed on them when there are people who are homeless is not a great look".
OTOH, I don't think he's really complaining, just pointing out that the system is pretty screwy even for someone who is in no uncertain terms doing pretty well.
Almost every complaint levied on this forum is a first world problem. Complaining about the ergonomics of a programming language is a first world problem. And secondly, he wasn't complaining, he was describing the economics of his choices. What is infinitely more toxic than 'complaining' about first world problems, is people jumping on explanations like the above as 'complaints' that need to be silenced.
That's just like, your opinion man.
>Complaining about the ergonomics
Look, complaining about work is a typical first world problem, sure. And of course we're all lucky to do the work we do and not live in [wherever.]
Complaining about 20% taxes on $200k of a ~$700k windfall is truly more like a .00001% issue and is pretty obtuse by any measure.
You wouldn't raise an eyebrow, or have any negative reaction to someone making $400k / year bitterly complaining that they have to pay taxes on it? I don't know anyone who wouldn't think that was obnoxious.
>he was describing the economics of his choices.
Sort of, in a fairly facile and borderline deceptive manner.
Where are these bitter complaints? He commented to say that rising housing prices weren't good for him. He explained why. That isn't a complaint. He didn't say "I deserve this money from my rising house price!". He didn't say "the world is so unfair to me". He just explained why this thing that people thought would be helpful to someone like him, was in fact, not helpful.
> Sort of, in a fairly facile and borderline deceptive manner.
What was facile or deceptive about what he said? He's absolutely correct.
First, he withheld the amount of capital gains, so everyone who initially responded naturally assumed it was under $500k, which is true of 99.9% of transactions. That was very misleading information to omit.
Secondly, he complained about broker fees, but it isn't required to sell a house using a broker by any stretch. Just do FSBO if you think the 3% cut (probably less) isn't worth it. And 3% isn't much at all when your already expensive house just went up over 100% in value. Facile and disingenuous.
>Where are these bitter complaints?
Pretending that he and his wife are "trapped" in his house and "can't afford to sell" makes it sound like a horrific and dire situation. Which is completely misleading, he and his wife are quite wealthy and could do anything they wanted. They are pretty much the opposite of "trapped."
>we can't afford to move!
Lies. They could easily afford to move.
They bought their house for something like $600k and now it's probably worth $1.3M. They pay 20% taxes on the $200k, so $40k and they lose 3% if they use a broker. That's another $40k, so $80k total. Let's make it an even $100k. So they have $1.2M to throw around, subtract $500k to pay off the existing mortgage, that's $700k free and clear.
$700k is a hell of a down-payment, even in the ritziest areas of Marin. Buy whatever you want.
I own a restaurant in norcal and have an employee whose room share / rental house burned in the recent fires. He goes to SRJC, doesn't have any family in the area, had no rental insurance, makes $12 an hour and no savings.
THAT's a dire situation, and considering I know people in situations like that, OP's framing of his (extremely cushy) situation as "I can't afford X!" is pretty disgusting to me.
There's nothing misleading about that. He didn't mislead you. You misled you.
> Pretending that he and his wife are "trapped" in his house and "can't afford to sell" makes it sound like a horrific and dire situation. Which is completely misleading, he and his wife are quite wealthy and could do anything they wanted. They are pretty much the opposite of "trapped."
You don't really understand money, it seems like. The fact that you have equity in the home you live in doesn't mean you can "do anything you want". I already explained why this is so.
> They bought their house for something like $600k and now it's probably worth $1.3M. They pay 20% taxes on the $200k, so $40k and they lose 3% if they use a broker. That's another $40k, so $80k total. Let's make it an even $100k. So they have $1.2M to throw around, subtract $500k to pay off the existing mortgage, that's $700k free and clear. $700k is a hell of a down-payment, even in the ritziest areas of Marin. Buy whatever you want.
700k is indeed a great down payment. But you have no idea what their income stream is like. If they aren't making a large income, they won't be able to afford their mortgage payments if they need to buy a house in an expensive area like SF. What he means by 'trapped' is that they have theoretically made all this money, but the money is of no actual use to them. And he is completely correct.
> I own a restaurant in norcal and have an employee whose room share / rental house burned in the recent fires. He goes to SRJC, doesn't have any family in the area, had no rental insurance, makes $12 an hour and no savings. THAT's a dire situation, and considering I know people in situations like that, OP's framing of his (extremely cushy) situation as "I can't afford X!" is pretty disgusting to me.
Gee, it does indeed sound dire. Maybe you should pay your employees more rather than yelling at people on the internet for being insensitive about money? Seems you're in a position to actually do something about that situation. But you won't. And there's a very good reason you won't: because it's bad business. The economics don't make sense for you to do that. Just like the economics of the OP's situation don't make him wealthy. Absolute values are irrelevant, it's the equilibrium that matters.
And secondly, making silly statements like "THATS NOT DIRE THIS IS DIRE" is absurd. Almost everyone posting here lives in a first world country. There are infinitely 'more dire' situations out there than any of us are in, and playing this childish 'no true scotsman' game is a waste of time.
The OP is using him or herself as an example of a real behavior in response to real economic incentives, no matter how unsympathetic you find their circumstance. The fact that this situation discourages moves that most other markets encourage is a worthwhile point to bring up. Among other things, it reduces supply which has a profound effect on new buyers.
Incentives influence actions much more than personal criticism does. The OP’s relatively fortunate outcome does not mean that they don’t have something relevant to share. In contrast, targeting them with pejorative shaming is totally unhelpful.
They bought their house for something like $600k and now it's probably worth $1.3M. They pay 20% capital gains taxes on $200k, so $40k, and they lose 3% if they use a broker. That's another $40k, so $80k total. Let's make it an even $100k. So they have $1.2M to throw around after the sale. Subtract $500k to pay off the existing mortgage, that's $700k free and clear.
$700k is a hell of a down-payment, even in the ritziest areas of Marin. They can buy whatever they want.
Why is expressing emotional reactions pointless, in your mind? Doing so gives everyone more information about the reactions they might expect to their concerns... it enforces social norms, etc.
The problem is that the comment provides nothing else. You can do the same thing in a more civil and constructive way. Just look at your comments. You are providing logic and rationale for your argument. I don't agree with you, but you're adding to the discussion. Now compare that to "I'm sick of you people. Stop whining about other people's comments you big baby". Someone can correct me, but that doesn't belong here and that rule has been around since the beginning of HN. It's been written and clear along with the reasons why. It's the way things have been done here. If someone doesn't like it, they can post on reddit instead.
https://news.ycombinator.com/newsguidelines.html
"Be civil. Don't say things you wouldn't say face-to-face. Don't be snarky. Comments should get more civil and substantive, not less, as a topic gets more divisive.
When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3.'"
I just believe the rules tend to stifle people from expressing how they truly feel about topics, and are therefore information limiting and generally a net loss.
It's a fine line. Some people's feelings are toxic all the time and wrong-headed and truly add nothing of value. Other people, when they have a negative emotional reaction there is probably a lot of accumulated wisdom behind it and you should really listen instead of censoring or rambling on about civility. Very subjective though.
Also, in my opinion, the constant suppression of any negative speech is exactly what gets someone like Trump elected. "Finally, someone on TV is saying what I FEEL and no one can stop him!"
Since a rising tide lifts all boats, the new purchase is about even with the old sale- but they also owe taxes. So within this window, they are objectively worse off than your average Joe who can move across town without owning those taxes.
Anyone trading up is also impacted as well. Suppose you bought a condo at 100k, and SFH was 200k. In five years you want to trade up, but the market went up 100%. Your condo sells for 200k, but the SFH costs 400k. Despite the lovely appreciation on your condo, you'd probably prefer if the market hadn't moved.
Sure, there's people who have it worse. Owning any home at all puts them in better shape than most of the world. But it's still not enviable to be unable to move within your community.
When a suit or Talbots customer argues over a price at Wal-Mart you should hear the similar type of tone the cashier takes after they leave. Especially if they argue for a buck or two.
This is real world