A Korean American woman in her 70s in Hacienda Heights gave up plans to sell her longtime family home after discovering the capital gains tax bill would be much higher than she expected. She bought the single-family house about 30 years ago for roughly $450,000, and it is now worth about $1.25 million.
After her husband died, she had hoped to move to a senior community, but the potential tax burden stopped the sale. The case highlights a growing problem for retirees and long-term homeowners, especially in Southern California, where home values have risen sharply while the federal home-sale exclusion has remained unchanged for nearly three decades.
Under current federal tax law, married couples filing jointly can exclude up to $500,000 in home-sale gains from tax, while single filers can exclude up to $250,000, as long as they lived in the home for at least two of the past five years. That threshold has not been adjusted since the Taxpayer Relief Act of 1997.
A recent report from data firm Cotality found that about 25% of California homeowners who sold residential property realized gains above the federal exclusion limit. The problem is not limited to California: Cotality said 21% of sellers in Hawaii and 19% in Washington also exceeded the tax-free threshold, with rising home prices pushing more owners over the limit in other states as well.
