Homeowners in America possess approximately $34.7 trillion in home equity, offering them a financial cushion amid rising living costs. Many seek to tap this equity for various reasons, such as funding retirement or helping family. However, outdated tax laws, particularly on capital gains, present obstacles. The unchanging exclusion limits since 1997 have resulted in unexpected tax burdens for long-time homeowners. Recent proposals aim to modernize these laws, including increasing gift tax exemptions and re-evaluating capital gains tax on primary residences to alleviate financial pressures.
Nowadays, homeowners face significant hurdles when attempting to access their home equity due to outdated tax rules that trigger heavy capital gains taxes on home sales.
Since 1997, the capital gains exclusion thresholds of $250,000 and $500,000 for individuals and couples respectively have remained unchanged, despite inflation.
Approximately 1 in 3 homeowners is affected by what is termed a hidden home equity tax, resulting from equity exceeding federal capital gains exclusions.
Lawmakers are responding to the growing burden of outdated tax policies by proposing various reforms, such as raising the SALT deduction cap and increasing gift tax exemptions.
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