In South Dakota, 25.4% of homeowners have home equity exceeding capital gains tax exclusions set by the IRS, potentially leading to significant tax liabilities. The federal exemption has not changed since 1997, despite home values increasing over 260% nationwide. While South Dakota does not tax capital gains, homeowners could face substantial federal taxes. Rapid growth in home appreciation, particularly in cities like Sioux Falls, results in many homeowners delaying sales to avoid tax penalties, thereby restricting housing supply for younger buyers.
According to data from the National Association of Realtors, 25.4% of homeowners in South Dakota have built up more home equity than the IRS allows to be excluded from capital gains tax.
South Dakota is one of the few states that doesn't tax capital gains, but federal taxes can cost homeowners tens of thousands of dollars once they cross the IRS threshold.
Real estate appreciation has been steady across South Dakota, especially in cities like Sioux Falls and Rapid City.
Homeowners, especially retirees, face a 'stay-put penalty' as they delay moving to avoid tax exposure.
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