In Tennessee, 36.1% of homeowners are facing a potential tax burden from capital gains when selling their homes, as their home equity exceeds the federal exclusion limits. Since the capital gains exclusion has remained unchanged since 1997, growing home prices have left many sellers unwittingly exposed to significant tax liabilities. Although Tennessee doesn’t impose state capital gains tax, the federal taxes can substantially reduce profits. Thus, many homeowners are opting to stay in their homes, exacerbating the inventory shortage in the state.
More than a third of Tennessee's homeowners, 36.1%, face potential capital gains taxes exceeding the federal exclusion, with many unaware of this impending financial burden.
Home prices in Tennessee cities have risen dramatically, with houses bought for less than $200,000 now selling for two to three times that, leading to unanticipated tax liabilities.
The current capital gains exclusion thresholds have not changed since 1997, while home prices have increased over 260%, affecting a wider range of homeowners.
Economists have labeled the phenomenon where homeowners remain in their homes to avoid taxes as the 'stay-put penalty', contributing to low housing inventory in Tennessee.
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