High Taxes Deter Home Sales in U.S.
High tax liabilities, particularly for older homeowners, are causing millions of U.S. single-family homes to remain vacant and off the market.
Jason Kwon ·
High Taxes Deter Home Sales in U.S. Approximately 7.2 million single-family homes across the United States are being withheld from the market, contributing to a national housing shortage, according to data from Flock Homes. This phenomenon, often termed 'zombie homes,' is significantly driven by the substantial tax liabilities homeowners, particularly older individuals, face upon selling their properties.
For many homeowners, especially those aged 65 and older who often own their homes outright, the tax burden associated with a sale frequently exceeds the costs of maintaining an empty residence. This includes capital gains taxes on profits and depreciation recapture taxes for rental properties. In the 49 most populous U.S. metro areas, a correlation exists between the number of vacant single-family homes and the proportion of owners aged 65 and above.
The total tax liability for sellers aged 65 and older in major markets can surpass $100,000. For instance, in the Los Angeles area, the average 'exit tax' for this demographic is $185,000, while annual maintenance, insurance, and property taxes for an empty home average approximately $10,000. This disparity means it can take many years for the carrying costs of an empty home to equal the immediate tax implications of a sale, incentivizing owners to retain vacant properties rather than sell them.