Dear Friends and Friends of Friends - 
I originally sent out this Bulletin about a year and a half ago, but every once in a while a client experience makes me realize it is worth repeating: the Federal and State tax on capital gains is 36.5 cents on every dollar of gain, but it is possible to exempt up to $500,000 of gain from that, repeatedly, on the sale of your home.

For those of us fortunate enough to own a piece of Planet Capitol, and those planning to, it is comforting to know ours is a market the eyes of the world always turn to, and one that has been rising steadily and rapidly for decades (with minor periodic corrections over the long run), and probably will continue to do so.

The sour note in that sweetness is that the Federal long-term capital gains tax on the sale of any asset is currently 23.5% of the gain, and there is a 13% New York State capital gains tax on top of that. That's 36.5%.

The good news is that when selling your personal residence the first $500,000 of gain is exempt from that tax, if you are married, and the first $250,000 is exempt for single people. These exemptions were made because a home is not like other assets. It's not just an investment. For many people, it is the basis of their security, and a major factor in their retirement planning. Those exemption amounts of $250,000 and $500,000 were originally thought to represent a lifetime's worth of gain. They still do, in much of the country. But not in New York.

The bad news (or good, depending on how you look at it) is that, in New York City, for anything bigger than a studio, those exemption amounts now only cover somewhere between 5 to 8 years of price appreciation and living there. Homeowners selling after that time often have no further exemption and pay the full 36.5% tax on every additional dollar of gain. 

That means, for example, that a couple who bought a nice 2 bedroom apartment on the Upper West Side for $140,000 in 1995 and downsized and sold it for $1.6 million twenty years later in 2015 will have their nest egg made smaller by the $532,900 capital gains tax they will pay. The first $500,000 of their gain will be exempt, but above that every dollar that would have gone into their retirement fund will be reduced by 36.5 percent.

HOWEVER, a way that New Yorkers can possibly regain the same lifetime exemption much of the rest of the country has -- to minimize that capital gains tax and possibly eliminate it completely -- is to start the exemption over again whenever you reach the $250,000/$500,000 limit, by selling that home, taking the exemption, and buying a new home. Then, the exemption limit starts over again. You get a brand new $250,000 or $500,000 exemption. 

Many people want to upsize, or downsize, or change location, about every 5 to 8 years anyway. By doing so, they take the exemption on their first home, and then start a new exemption on their second home. In essence, a couple would reduce their tax bill by $182,500 every time they did that over the course of a lifetime (the 36.5% Federal and NYS capital gains tax times the $500,000 exemption). If that couple had moved twice in the past 20 years, they would have saved $365,000 on the capital gains tax bill -- kept it in their pocket instead. (Please note: I am not an accountant, and this should be verified with yours.)

People decide where to live their lives based on many factors, of which how much they can save on taxes is probably not the highest consideration. But if you would ever like a no strings conversation on how much your home has appreciated since you bought it, and what possibilities are open to you, please feel free to give me a call.

Best regards,


917 538 4516

Jay Molishever
Associate Broker - Platinum Award
387 Park Avenue South
4th Floor
New York, NY 10016

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