Equity rich and looking to sell? Uncle Sam wants you

31% of California couples would owe taxes if they sold their home

Buy and hold, often for a long time, is gold.

It’s a tried-and-true practice that has paid off well for many homeowners, who have used that equity for everything from moving into retirement communities to helping family members attend college or even buy their own homes.

Real estate is easily the biggest wealth generator nationwide, from Portland, Ore., to Portland Maine. But homeowners with a lot of equity who sell their home face a huge tax bill from Uncle Sam, greatly affecting generational wealth, according to a National Association of Realtors report.

CAPITAL GAIN LIMITS SET IN ‘97

As home prices increase, equity has soared nationwide, especially in California.

But the limit on taxing homeowners’ profits from home sales is stuck in 1997, when Seinfeld and Friends dominated TV. Back then, Congress approved a capital gains limit of $500,000 for married couples who sell their homes, and $250,000 for single sellers.

That limit hasn’t changed in almost 30 years. 

And that’s a huge problem for sellers, their family members and even shoppers. 

SINGLE HOME SELLERS ARE HURT THE MOST

Almost one of every three (31%) married couples who own a home in California exceed the $500,000 limit for a married couple, meaning every dollar above that threshold is taxable. About 62% of single homeowners in the state have more than $250,000 in equity and would owe the amount above that threshold in taxes.

How out of whack is the current capital gains limit? Good luck finding a house for less than $500,000 in California, where the median-home price is above $900,000 according to the California Association of Realtors.

California has the second-largest percentage of homeowners – married and single – that would owe taxes in the nation, behind Hawaii at 79% and 46%, respectively.

A LARGE MAJORITY OF CALIFORNIA SELLERS WOULD HAVE A HUGE TAX BILL BY 2030

And the problem will likely increase, as prices rise. The National Association of Realtors estimates 61% of married couples and 84% of single owners in California will owe taxes if they sell their home in 2030, at least with the current capital gains limit. (Hawaii homeowners, again, will suffer the most at 70% and 89%.)

Federal lawmaker could fix the issue by creating a new capital gains limit tied to inflation. With inflation, the capital gains limit today should be about $1.32 million for married couples and $660,000 for single owners who sell. 

Without the change, many homeowners will avoid selling their homes and a tax bill from Uncle Sam. So, fewer homes will be available and older owners of larger homes will remain in properties that are too big.

More dollars from home sales would likely help improve the number of Californians who could buy a home, thanks to generational wealth. Fewer than one of every five families can afford to a buy a home in the state.

But Uncle Sam is not going to help.

Home-flipping flounders in Q1, as prices stall

Many home-flippers are hurting in California, as double-digit home price gains are history and the one-time sellers’ market has flopped back to the side of shoppers.

All nine regions of California – from the Bay Area and the Sacramento region to San Diego – reported declines in returns on investment during the first quarter compared to a year ago, according to ATTOM Data. For the most part, the drops were small, except for a 22% drop in Bakersfield, one of the strongest markets for flipping homes in recent years.

California home-flippers continue to lose ground – and profits – in the sputtering housing market. 

Two of every three markets in the state failed to beat the nationwide percentage return of 25% during the first three months of the year, down from 28% a quarter earlier – and a huge drop from the record-setting 49% in fall 2020, when pandemic-buying prompted a frenzy for real estate.

‘SQUEEZING PROFIT MARGINS’

The drag on home-flipping returns rests on a rather stagnant housing market, where home-flippers purchase a property with the plan to remodel and then sell for a nifty profit. But even with an extensive remodel, the price gains are smaller than expected – and, in some cases, flippers are losing money.

Bakersfield and Fresno boast the biggest percentage returns – 39% and 38%, respectively – in the state, with Sacramento at 30%, the only three markets to surpass the nationwide average (see table, below). Returns for home-flippers in Los Angeles and San Francisco were under 20%, leaving little or no profit for sellers.

“The competitive home market means high prices, which is good for short-term investors on the selling end,” said ATTOM CEO Rob Barber. “But that dynamic is also making it harder to find underpriced homes to buy up and it’s ultimately squeezing profit margins for the industry.” 

FLIPPERS ARE SPENDING A LOT OF MONEY FOR A LITTLE RETURN

ATTOM Data crunches data based on the purchase price and the sale price, coming up with the profits – as in money in pockets – and the percentage return on the investment. But the figure does not include remodeling costs, interest rates for the short-term mortgage, property taxes, sales commissions and homeowners’ insurance, one of the fastest-risings costs in California.

Now, some home-flippers are still making money – San Jose flippers had the biggest payday nationwide at $309,000, followed by Orange County at $224,000 – but is that enough for a hefty investment and a huge risk? Some of those home-flippers may have walked away with $100,000 or less before income tax.

“It’s tricky to balance at times when the market looks like it could take a downturn,” Barber said. “Investors don’t want to buy a property when prices are high and then see them drop before they’re ready to sell.”

How much could you put down? The average down payment in California exceeds the national average

Despite a challenging economy and much uncertainty, California homebuyers continue with hefty down payments – with many exceeding the need for mortgage insurance, according to a new report.

Recent homebuyers in seven of eight regions of the state, from the Bay Area and the Sacramento region to San Diego, are buying homes with at least 20% down payments, easily exceeding the nationwide average of 15%, according to Redfin.

Riverside, which includes the nearby cities, was the only region below the national average at 12%. However, the region is also considered an affordable option for first-time and lower-income buyers, many who may have less money – and likely little or no equity – than others in the state. The average down payment in Riverside was about $63,000 (see table, below).

Homebuyers in Anaheim (think central Orange County), San Francisco and San Jose had the largest down payments at 25% — or at least $290,000 to more than $465,000.

It’s worth noting, other recent reports have found similar down payment percentages across the state.

ALL-CASH DEALS ARE IMPRESSIVE IN RIVERSIDE, SLIDE IN OAKLAND AND SAN JOSE

The report goes a bit wonky when it comes to all-cash deals. Riverside has one of the highest percentages of all-cash deals in the nation at 38%. 

Bottom line: Riverside is attracting first-time and lower-income buyers – many with smaller down payments – and investors who have plenty of money.

Oakland and San Jose are among the cities with the lowest percentage of all-cash deals, about 18%. Higher home prices are likely the primary reason.

But analysts and housing experts say more homebuyers are holding off on all-cash deals and, to some extent, larger down payments because of concern about the economy and the job market.

Median down payment and all-cash deals in mid-spring 2025

City	Median % down payment	Median down payment	% of all-cash deals
Anaheim	25%	$290,000	28.9%
Los Angeles	20%	$181,000	24.7%
Oakland	20%	$225,000	18.2%
Riverside	12%	$62,914	38.2%
Sacramento	20%	$90,375	21%
San Diego	20%	$168,000	22.4%
San Francisco	25%	$430,025	26.8%
San Jose	25%	$465,250	18.3%

Source: Redfin