Hidden Tax Hits Massachusetts Homeowners at Sale

Who doesn't like surprises? Finding 20 bucks in an old coat pocket. Your kids show up unexpectedly on Christmas Eve. The gang planned a dinner party for your birthday.

Surprises are fun, unless they're not. Like when you find out you unexpectedly owe money. Surprise!

Here is a potentially unpleasant surprise you may want to contemplate, and it does involve money. You are selling your home because prices are through the roof, and you can make twice what you paid for it, or even more.

Then you realize the government wants its share of the profits beyond what you anticipated. Fork it over.

Realtor.com reported, "62.3% of Massachusetts homeowners will face a hidden home equity tax if they sell." Hidden tax? Massachusetts? Say it ain't so!

What Is the Hidden Home Equity Tax?

The site stated, "Massachusetts homeowners have seen dramatic increases in property values, but those gains now come with an unexpected catch," a hidden home equity tax when they sell their property, "thanks to outdated federal capital gains rules that haven't changed in nearly three decades."

Realtor.com reported, "Massachusetts taxes capital gains as income. Long-term capital gains are usually taxed at a flat rate of about 9% but there are some types of capital gains that the state taxes at 12%."

How Capital Gains Affect Massachusetts Homeowners

The bottom line appears to be that the longer you stay in your home, the more your home appreciates, and the more likely the IRS will claim a larger portion of your profit when you sell.

Another Realtor.com piece showed where in the U.S. you are likely to be over the "exclusion limit" and by how much.

Why This Tax Matters for Downsizers and Retirees

The same article states this home equity tax "erodes family wealth right when people need it most. It discourages older owners from downsizing or moving closer to care – and keeps larger family-sized homes off the market, fueling the inventory crunch that's driving up prices for everyone."