Homeowners in Illinois are experiencing unexpected financial repercussions when selling their homes, attributed to outdated federal tax policies. Currently, 12.5% of homeowners exceed the $250,000 capital gains exclusion, with an additional 2.4% surpassing the $500,000 limit for couples. Since 1997, home values have increased significantly, but the capital gains exemption limits have not adjusted for inflation. This situation means that many long-time homeowners, often with middle incomes, are now liable for capital gains taxes. Illinois also taxes capital gains as regular income, compounding the financial burden for these owners.
In 1997, the federal government created the capital gains exclusion to shield typical homeowners from taxes on the sale of their primary residence. Sellers could exclude up to $250,000 in profit-or $500,000 for joint filers. But those limits were never adjusted for inflation.
Had the exemptions kept pace, they'd now exceed $660,000 for individuals and $1.32 million for couples. Instead, longtime Illinois homeowners are learning that capital gains taxes on home sales may apply even to modest, middle-income homes.
More than 424,000 Illinois homeowners are already over the $250,000 exclusion limit, and 82,500 are beyond the $500,000 cap. These aren't just wealthy households.
Illinois further taxes capital gains as regular income, at rates up to 4.95%. That means a federal tax bill could be compounded by a state one, especially for owners with long-term appreciation.
#home-equity-tax #capital-gains-exclusion #illinois-housing-market #federal-tax-policy #real-estate-taxation
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