New bill could eliminate home sale taxes for some, help seniors save for retirement
Updated: May 18
When you sell a home, you may face capital gains taxes on any profit from the sale.
A new bill would eliminate those taxes completely if the homeowner invests the proceeds in a Roth IRA.
The Senior Housing Improvement and Retirement Accounts (IRA) Act would do away with the $7,000 Roth IRA contribution limit for those nearing retirement as long as homeowners shift their home sale profits into a Roth.
Homeowners who are 55 and older and who have owned their homes for at least 20 years would qualify for this one-time transaction. Sales of second homes, vacation homes and investment properties are not eligible for the deal.
Want more personal finance news? Enter your email address to be the first to know:
The goal of the bill is to help seniors afford retirement in New Jersey, said Rep. Josh Gottheimer (NJ-5), who co-sponsored the bill.
He said today, seniors are blocked from tapping one of their largest assets — equity in their homes – to save for retirement, and they’re hit with taxes when they can least afford it.
The legislation would be especially helpful for homeowners in New Jersey, Gottheimer said, because for many, it’s simply too expensive to live and retire in the state. He noted that last year, more residents moved out of New Jersey than any other state.
Gottheimer announced the bill during a press conference at the Fair Lawn Senior Center Monday morning.
But financial advisors said they weren’t sure the legislation would be much help to the average homeowner.
Under the current federal law, you can exclude capital gains of up to $250,000, or $500,000 if married, from a home sale.
Few people have gains higher than those amounts, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.
“I assume the purpose of this is to help people in lower incomes set aside money for retirement which is great, however, where do they live after that?” Lynch said. “The only people who can really take advantage of this have to be relatively wealthy so they can buy an additional home with the other funds that they have.”
Few people would benefit, agreed Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
He called the bill a “sounds good” idea with little real world application.
“Who would benefit from Rep. Gottheimer’s proposal? That would be a single homeowner who purchased their New York City home for $1 million many years ago and sells it for $2.5 million when they move to Florida,” he said, noting that under current law, only $250,000 of the $1.5 million profit would escape taxation.
Lynch said he would rather see seniors sell their homes, take the gain, which may very well be tax-free, and move to a lower-cost home. Then homeowners can pocket the equity difference and even consider a reverse mortgage, which would allow them to tap into the equity tax-free.
“This keeps them in their home, the gains come out tax-free and the future equity comes out tax-free,” he said.
Norman M. Fleischer, a certified public accountant in Fair Lawn, consulted with the congressman about the bill and disagreed with the criticism.
“You don’t have to be wealthy to take advantage of this legislation,” Fleischer said. "Many people throughout North Jersey have seen their home values grow over the past decades, and this bill gives middle class residents the opportunity to put more money aside and save for retirement.”
Rep. Gottheimer added that he’s seen too many seniors in his district who say they can’t afford to stay near their family in New Jersey.
“My bipartisan legislation will help seniors when they’re looking to downsize, retire, and stay here in northern New Jersey, where the average real estate price is $609,000,” he said. ”That’s my ultimate goal — to lower their taxes, save more for retirement, and be right near their families,” he said.
*** This post was updated to include comments from Rep. Gottheimer and CPA Norman Fleischer about criticism of the bill.
Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com.