Proposition 13 Tax Revenue/Increase Without Changing Legislation

March 5, 2007

Capital Gains Inequities Among Seniors and partial revenue solutions to property inequities.

Prop. 13 Tax Revenue/Increase Without Changing Legislation

Capital Gains Inequities Among Seniors

Why do some seniors pay huge capital gains when selling their homes while others pay nothing? The reason is a little known part of the 1981 Federal Estate tax legislation referred to as the “Step-Up-In-Basis-At-First-Death.” This provision means that a current surviving spouse can sell their home for any price with no tax obligation at all. Contrast that to a senior couple across the street that will have to pay a 24% capital gains tax on all gain above the $250,000 per person exemption. In many neighborhoods, that can now amount to a tax of $300,000 and much more on the couple, while the current surviving spouse can make the same sale and move on with no tax obligation at all.  Property taxes among neighbors can vary: $2,000-$36,000 per year for the same value homes in upper middle class neighborhoods. A partial revenue solution to property tax inequality (Prop 13) would be to give equal treatment to senior couples and surviving spouses, at least with respect to real estate home sales. The long-term effect of the existing Federal Estate tax legislation is to create an increasing financial incentive for seniors to stay where they are and hold property until a death occurs. It leads to limited inventories, lower potential property tax revenues in older neighborhoods and ultimately higher prices for residential and commercial real estate. Read the rest of this entry »

Commercial Property and Home Sales Capital Gain Ineguities

March 2, 2007

Click on the following pdf file to see a graph of Capital Gain dollar inequities.