- Nearly half of Arizona homeowners have over $250,000 in home equity, potentially triggering capital gains taxes upon sale.
- Current capital gains exemptions allowed single filers to profit up to $250,000 and joint filers up to $500,000 tax-free.
- The More Homes on the Market Act proposed doubling these limits to address concerns about hindering housing market activity.
Many Arizona homeowners are sitting on a lot of equity in their homes, but if they sell, it could cost them.
A 1997 federal capital gains tax rule meant single sellers can make only $250,000 on the sale of a home before paying the additional taxes, according to the IRS. Joint filers can pocket $500,000 before paying capital gains.
Almost 49% of Arizona homeowners have more than $250,000 equity in their houses, according to a National Association of REALTORS report.
About 10% of the state’s homeowners have exceeded the $500,000 equity cap.
“A capital gains cliff is coming for the middle class,” said Shannon McGahn, NAR executive vice president and chief advocacy officer. “Equity shouldn’t be a trap. It should be a stepping stone for the next chapter.”
Metro Phoenix’s median home price has skyrocketed 285% since 2011, according to the Arizona Regional Multiple Listing Service. The Valley’s median price is now $334,000 higher.
The capital gains tax, which can be as high as 20% depending on homeowners’ incomes, could be deterring some sellers and contributing to the housing market slowing, said housing analysts.
National bipartisan legislation called the More Homes on the Market Act has been introduced. The legislation would double the capital gains limits.
Nationally, 34% of homeowners, or approximately 29 million, could already have enough equity in their homes to exceed the $250,000 cap, and over 10%, or around 8 million, could have more than $500,000, according to the National Association of Realtors.
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