The capital gains tax, stemming from a 1997 federal tax rule, now impacts 13.4% of Alabama homeowners who have significant home equity appreciation. Many homeowners have exceeded the $250,000 exemption for single filers and the $500,000 threshold for joint filers due to a 260% increase in home prices since 1997. This situation results in a "stay-put penalty," making it difficult for long-term homeowners to sell, particularly those nearing retirement. Alabama also imposes a 5% tax on capital gains as regular income, further complicating the financial implications.
The home equity tax affects 13.4% of homeowners in Alabama, driven by the appreciation in home values that surpasses the federal exemption limits for capital gains.
Since 1997, the capital gains exclusion limits have remained unchanged, while U.S. home prices increased by over 260%, placing many homeowners above the original thresholds.
This disconnect between home appreciation rates and tax exemption limits has created a "stay-put penalty," discouraging long-term homeowners from selling their properties.
The financial impact of Alabama's capital gains tax as regular income at a 5% state rate adds to the reluctance among homeowners to sell their homes.
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