So, I bought a place to live in here in Los Angeles in 2011. Lucky me, bottom of the market. It's in the rapidly gentrifiying area of downtown. I've seen some pretty substantial appreciation in that time. I'm starting to push up against the $250,000 capital gains exception. After that, the tax hit starts to look massive. Especially here in tax happy CA (where there is no special capital gains tax rate...you just pay the ordinary income tax rate of 9.3%). Thus, any gains over that $250,000 are looking at getting taxed at like 25%. Plus, if you hold longer and end up with even more gains (something like over $400,000 including your income for the year) you're looking at 35% marginal rate PLUS getting socked with some special Obamacare tax as well as AMT. I mean it's murder! Even if you think the property is going to continue to appreciate, does it make sense to hold it much over that $250,000 gain? Especially if your plan is like mine and you want to FIRE somewhere outside of high cost CA?
I love the place and where I live, it's super close to where I work, but it seems financially it makes zero sense to hold much beyond that $250,000 exception. How can you possibly make the numbers work with those kind of tax rates? Sell and rent seems to be the best option. Sell and buy would just up my property tax basis. What say you?