[abustamam]

My in-laws bought a house in the East Bay area in 2000 for about $400k. Worth about $1.5m (according to zillow and similar homes in the neighborhood that have recently sold). Fully paid off now, and they're retired.

If they were to sell it, they'd have to pay taxes on 1.1m of "profit." sure they can write off renovations and deduct $500k but that's still a lot of taxes to pay!

So yeah, they wouldn't be able to sell and rebuy even their own house because uncle sam just took about $100k on the sale of their house.

[anamax]

The first $500k is federal tax-free. The rest is taxed at long-term capital gains rates.

IIRC, California taxes that $1.1M as ordinary income.

[abustamam]

$1.1m is a lot of money to pay taxes on for middle class retirees!

My point is that they wouldn't be able to rebuy their house, since they'd pay taxes on the "profit," and then need to get another mortgage at 6%.

When I was shopping for a house one of the sellers had a special exclusion where they'd roll the proceeds into a special account that they'd use to buy another house so they won't pay taxes on the profit. I think it's quite strange that RE investors get that exclusion but if it's your primary residence you don't. I feel like it should be the other way around.