Let’s say one is sitting in their beautiful home in lovely Palo Alto, CA enjoying the wonderful weather and contemplating whether to sell that home. Let’s also say that the home has a ton of equity, so much so that the TAXABLE capital gains on that home will be $1mm. Today, tax on capital gains is running $15%, so this fortunate client is looking at a $150,000 tax bill*. But the client also sees the market doing well and thinks, “Maybe I should wait until next year to sell..?” While that’s certainly an option, let’s look at what might happen:
- The capital gains tax is expected to rise to 23.8% in 2013, so a $1mm gain would suddenly have a $238,000 tax.* Ouch — 3.8% Medicare tax and 20% capital gains rate.
- Interest rates are expected to rise, which would increase the monthly cost of the property if financed– a .5% increase in rate has about a 25% impact!
- If interest rates rise, then the pool of buyers may be smaller since financing is more expensive.
- If inventory levels rise due to more Boomers downsizing, then prices may be negatively impacted.
So let’s review what we know about 2012 and why now may just be the “perfect storm” for those thinking about selling their home:
- Election year
- Lowest interest rates ever
- Financing qualifications have eased — In case you didn’t know, there are no-income, cross-collateral, pledged- asset, 50%+ DTI programs available.
- Demand is HUGE– according to Producers Forum, there are over 100 active buyers in Palo Alto right now, yet less than 50 homes available!
- The IPO market is certainly having a positive impact on the entire, local economy.
- The Silicon Valley 150 is up almost 25% in the last 6 months.
- According to Altos Research, median prices seem to be up accross the board..!
Based on what we’re seeing, especially with all of the pre-approvals that we’re writing, it seems to be a very good time to be a seller.
*Does not constitute tax advice. Please seek tax advice from a qualified professional.