Arizona's real estate market is thriving, leading to increased homeowner equity; however, outdated federal capital gains tax rules are causing financial strain. Nearly half of Arizona homeowners exceed the $250,000 capital gains exclusion for singles, with over 10% surpassing $500,000 for joint filers. These caps, set in 1997 and not indexed to inflation, are significantly lower than they should be based on home price increases. As property values continue to climb, sellers may face federal capital gains tax rates up to 20%, potentially eroding their retirement funds and impacting their financial stability.
Since 1997, national home prices have skyrocketed over 260%, yet the capital gains exclusion amounts have remained unchanged, leading to more taxes for prospective sellers.
In Arizona, 48.5% of homeowners have surpassed the $250,000 capital gains exclusion for single filers, and 10.3% have gone beyond the $500,000 for joint filers.
With current federal capital gains tax rates reaching up to 20%, homeowners face significant tax burdens as property values rise, impacting funds for downsizing or retirement.
Arizona may currently experience lower percentages compared to states like Florida and California, but its growing real estate market makes it a significant area of concern.
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