Tuesday, June 14, 2005

The new tax

Los Angeles Times: Cost of Moving Up Keeps Many From Selling Homes
James Joseph, owner of a Century 21 realty franchise in Whittier, calls it the "golden jail" of homeownership. Even though they are sitting on a ton of equity, "a lot of people aren't selling … because they can't afford to move up," he said.

If a single Californian who has lived in her home at least two of the last five years sells her house, she gets to keep the first $250,000 of gain free of income tax, but any amount above that will be taxed. (For a couple, the tax-free amount is $500,000.) In addition, if she decides to buy another home, she would have to pay annual property tax equal to at least 1% of the assessed value, which in nearly all cases is the purchase price.

So, if she buys a median-priced home in Southern California, which today is about $450,000, she will be on the hook for at least $4,500 in yearly property taxes. (The median is the price at which half of all homes sell for more and half for less.)

It's not just higher taxes and higher prices that are persuading many homeowners to sit it out. Brokers' commissions, escrow fees and other closing costs also are based on a percentage of a home's sale price. So as prices rise, so do the costs associated with the transaction.
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