Coming Soon: More Luxury Homes on the Market?
But if the Bush-era capital-gains tax cuts expire, the tax rate on such proceeds will jump to 20%. Plus, starting in 2013, individuals who make at least $200,000 in income (or married couples making at least $250,000) will have to pay an additional 3.8% health-care tax on capital gains. The legislation is set to go into effect in 2013.
In all, the tax hikes stand to bring the cumulative tax rate on gains from luxury-home sales up by 8.8% to 23.8%. To be sure, the expiration of the capital-gains tax cuts is by no means a done deal: Presumptive Republican presidential nominee Mitt Romney has vowed to extend them. And the House of Representatives -- with mostly Republican support -- voted Friday to extend them for one year, despite opposition from the Senate and President Barack Obama.
But the possibility of the tax increase creates quite the incentive for high-end homeowners to sell before the new year, said Vijay J. Marolia, chief investment officer at Private Wealth Management.
"We're telling them to take the profits right now," he said of his high-net-worth clients. "We really feel strongly that taxes are going to go up in the future. The government needs revenues." Marolia, like Lance, advises clients in the luxury home market.
One of Lance's clients is a couple who originally bought their home for about $100,000, she said. But after renovations and price appreciation, it's now worth about $9 million. After deductions, including renovations and closing costs, the couple would get taxed on about $5 million if the home sells for its asking price, she said.
If the capital-gains tax cuts expire and they sell next year, the couple would have to fork over about $1.19 million to Uncle Sam. But if they sell this year, they'll only have to pay around $750,000. That would amount to a savings of about $440,000 for the couple.
'Sellers Are More Motivated to Listen'
Due to the potential for such savings, "sellers are more motivated to listen and work with an option," and negotiate with potential buyers, said Frances Katzen, a Realtor at Prudential Douglas Elliman Real Estate, who moves swanky residences in New York City.