Too Expensive to Sell a House?

Investment Analysis Clubs Macro Economic Trends and Risks
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Some 7.2 million homes are vacant nationwide,because the senior citizen owner believes it’s cheaper to leave the place vacant than to pay capital gains taxes and high skim rates to real estate brokers, title insurance companies, and escrow agents.

{{ Roughly 7.2 million single-family homes are sitting empty and being kept off the market, according to the real estate investment service Flock Homes, contributing to a nationwide housing shortage. But a closer look at these “zombie homes” shows that for many owners, selling just isn’t worth it.

This is especially true for older homeowners, many of whom have paid off their mortgages. In the 49 most populous U.S. metro areas, the data showed a correlation between the number of vacant single-family homes and the share of owners 65 years old and older.

According to Flock Homes, for many retirees “the tax bill triggered by a sale far exceeds the cost of simply leaving the home empty.” This includes capital gains taxes (paid on the profit from the sale) and depreciation recapture taxes (which sellers of rental properties face). The federal capital gains exemption, which applies to the sale of primary residences, was not factored into the analysis of vacant homes. }}

https://www.nytimes.com/2026/04/30/realestate/zombie-homes-exit-taxes.html

intercst

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This doesn’t make a ton of sense. An empty home is a slowly appreciating asset. That’s made worse by the maintenance, insurance, and taxes.

You going to have to realize the gains eventually, so why not take the hit now instead of a bigger hit later?

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Not if you can hold on long enough to get the stepped up cost basis at death.

intercst

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I was thinking along those lines. The taxes may be paid, but maintenance in cash strapped families may go undone.

People freeze like deer in the headlights when it comes to financial decisions.

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I’m not sure that is as good a deal as it might sound!

JimA

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And then you, as the owner, have avoided capital gains, so you won, right?

Not that you can enjoy the proceeds, but “yay?!?”

Again, it makes zero sense. There are many ways to avoid much of the expense as well as taxes of selling a home. Land contracts or an installment sale, CRTs, and of course primary residence exclusion to name a few.

Wow, is that some serious innumeracy.

You pay the tax bill once, and the tax bill will always be less than the proceeds - even if your cost basis is $0. You have an annual cost of leaving the home empty - that likely grows every year.

This scenario reminds me of the people that think paying thousands of dollars in interest on a mortgage is smart because it reduces your property taxes - never realizing that the reduction in assessed value may only be $3000; maybe saving $100 a year in property taxes.

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It’s maximizing the wealth left to heirs. When you include state taxes, you can lose as much as 30% of the value of the house to taxes. And in community property states, the surviving spouse can get the step up in basis and sell with no income tax.

The tax savings from waiting can be the main return on a real estate asset.

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More on this, courtesy of Gemini:

Owning a $1 million vacant home in Los Angeles is expensive due to high property taxes, specialized insurance premiums, and required maintenance, with costs likely exceeding $17,000 to $25,000+ per year in 2026. [1]

  • Property Taxes: Based on a 1.2%–1.3%+ effective rate in 2026, you should budget roughly $12,000–$13,000 annually.

  • Vacant Home Insurance: Specialized insurance for vacant homes is 50%–60% higher than standard policies. Expect to pay around $4,000–$6,000+ annually.

  • Maintenance & Utilities: While lower than occupied homes, landscaping, security, and basic utilities (water, electricity) for a $1M home can cost $2,000–$5,000+ per year.

The estimated annual cost to hold a vacant \(\$1\text{ million}\) home in Toledo, Ohio, in 2026 is approximately \(\$20,000\) to \(\$35,000+\), excluding mortgage payments. This high cost is driven by significant property taxes, specialized vacancy insurance, maintenance, and utility fees. [1, 2, 3]

Here is a breakdown of the estimated annual costs:

1. Property Taxes (Highest Cost)

Toledo, located in Lucas County, has a high effective property tax rate, often exceeding \(2\%\) in certain areas. [1, 2]

  • Estimate: For a \(\$1\text{ million}\) home (using 2026 Lucas County averages), taxes can range from \(\$15,000\) to \(\$25,000+\) annually.

  • Note: Ohio assesses taxes at 35% of the appraised market value. [1, 2, 3]

2. Vacant Home Insurance

Standard homeowners insurance usually excludes coverage after a home is vacant for 30–60 days. You must purchase specialized vacant home insurance, which is typically 50–60% higher than standard insurance. [1]

  • Estimate: Specialized coverage for a high-value home could exceed \(\$4,000\) to \(\$6,000+\) annually. [1]

3. Maintenance & Utilities

Even while vacant, the home requires maintenance to prevent degradation and avoid municipal fines. [1]

Utilities (Minimal): Maintaining heat (to prevent pipes from freezing) and electricity for security systems can cost \(\$2,000\) to \(\$4,000+\) annually.

  • Maintenance: Landscaping, snow removal, and security checks are crucial to avoid being classified as a “blighted” property. Regular security, upkeep, or hiring a property manager can cost \(\$1,000\) to \(\$3,000+\).

In summary, holding a high value home and waiting to die could quickly eclipse the taxes one might pay on the sale of said home. At roughly $20k a year, in just ten years it will have cost a person more than $200k (due to inflation) in ongoing expenses.

Even if the cost basis was zero and the person was subject to a 30% tax rate, 700k (the difference) would grow back to $1,000,000 in value in less than those same 10 years at a return of less than 4%.

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Of course it wasn’t factored in. Flock’s whole business is to convince homeowners to trade their home for shares in a diversified real estate fund. They have plenty of incentive to convince people not to sell their homes by overplaying exit tax impacts.

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It’s still foolish. The initial analysis, and surprisingly most of the discussion on this board, doesn’t talk about the opportunity cost of leaving all that capital tied in a home that’s still vacant. Which is surprising, given that it comes up in every “rent v. own” discussion.

A vacant home generates neither income nor housing for the owner. The capital tied up in a vacant home will appreciate much more slowly than capital in the equity markets. Perhaps some of these homes have a lot of financing on them, but it seems unlikely to be a very large number of them - especially since these are mostly going to be jumbo mortgages as investment properties (by definition since they’re not owner-occupied), so the loan amounts will be smaller and the interest rates will be higher.

Though to be fair, the original report doesn’t really document at all what they’re alleging. They’ve noted that there exist about 7.2 million homes that have been vacant for 90 days. Which…okay. That’s less than 9% of homes. They never establish what percentage of those homes are owned by old people, much less how many of them are owned by old people who are intentionally holding them off the market rather than, say, listing them for sale that ends up taking more than 90 days (including closing and establishing new occupancy). Or like the house next door to mine, which was purchased by a company to renovate and flip, but has been vacant for 8 months while they sit in permitting hell with the City of Miami.

Plus, even if you’re doing this sort of thing…why leave it vacant? If you can handle the rental income without suffering some Medicaid cliff, then rent it - but you should be able to pay your property tax, insurance, and maintenance cost through the rental payments. If you can’t make that work, then let your kids/beneficiaries rent it - and let them take the income.

I doubt that there are very many homes that are vacant for the reasons stated in the article. It’s just…a silly thing to do for people that have such expensive assets that they can afford to leave vacant.

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I agree. In fact, I seem to remember long ago that one of the mantras at TMF was don’t base your investment decisions on taxes.

Regardless, I believe current law allows you to exclude a big chunk of the gains right out of the gate, and then the remainder is taxed as capital gains if you lived there long enough. As long as you keep your ordinary income low enough, that means zero tax.

I’m assuming they did away with the one-time sale of your primary home without capital gains taxes? I remember 1poormom talking about it when I was younger, and I’m pretty sure she didn’t pay any taxes when we had to sell her place to move her into a senior home. Her accountant did the taxes (she had him when she owned rental properties, and continued with him after she stopped being a landlady), but I don’t recall a big tax bill that year.

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It’s been a while, but my recollection that for primary residence you get a 250K deduction if single, 500K if married filing jointly. I don’t recall a one-time sale exemption - it used to be that if you sold and used the proceeds to purchase a new primary residence, you would carry your basis to the new home.

But to the main OP - now I realize it’s utter garbage. I zipped over to the census bureau website that maintains the study they’re using:

Housing Vacancies and Homeownership - Press Release

The 7.3% vacancy rate is for rental homes. The vacancy rate for homeowner housing is only 1%. However, neither of those is the relevant vacancy rate, because the Census has a separate category for Vacant units held off the market, which is what they’re looking at. Unlike other vacancies, those aren’t broken down by housing type. However, they were only 4.3% of the total housing market. Of which, only 2.4% of the overall housing market was something other than second home or vacation home.

So even if all of those units were single family detached (unlikely), and all were being held off the market to intentionally keep them vacant (unlikely), it would “only” be about 3.4 million units. If a third of them were held by old people (unlikely), it would “only” be a little over a million units. Less than 2% of total SFR housing stock.

And here’s the kicker. The company that issued the study? They’re in the business of trying to persuade old people to sell their homes to them in a 721 exchange for a piece of their fund. The exact type of “skim and scam” that some folks try to warn others of. I wonder if they might have a vested interest in trying to persuade people that there’s a “tax wall” keeping them from just selling their homes on the market, and not bothering with their product?

Frequently Asked Questions

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Yes. But there was a one-time-only exemption from all cap gains taxes on the sale of a primary residence. Looking it up, it clearly is no longer the case. I don’t know when they rescinded that.

Mom was looking forward to exploiting that. I don’t remember how long ago. Maybe she did. Her last place she was expecting to be her LAST place, so maybe she used it on the one before that. (She wasn’t expecting diminishing capacity, and having to move -ultimately- to memory care.)

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Probably 1997. There used to be a one time exclusion on some cap gains (up to $100K) for seniors, along with the rollover. They were both taken out in 1997 to move to the 250K/500K exclusion for everyone.

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Not quite everyone. As you mentioned earlier, it’s for primary home capital gains. Also, people have to meet the ownership and use test.

What’s ironic is that by moving out of a primary residence and holding on to it, would be sellers may be screwing themselves out of the capital gains exclusion. The qualify, individuals and married couples have to live in the home for at least 24 months during the prior 5 years before the sale.

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My sister and I just did this calculation. We just moved my mom into assisted living. Mom is in great shape for age 91, but anyone who is 91 realistically has only got a few more years left.

So the question was keep the house vacant until she passes and inherit the house tax free, or sell it and pay the taxes? We figure she’d net about $700,000, and the capital gains taxes would be about $67,000, something like that.

We figured it would cost about $40-50,000 to maintain the house over a four year time period. Right there, we’d lose most of the tax savings.

But if we sold it and put the $700K in bonds at a modest 4% interest rate, we’d gain almost $120,000 over the same four years. And we don’t have to manage the house.

Bottom line is the the arithmetic is wildy in favor of selling immediately.

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Also if you move into a licensed care facility you only have to live in the house one year out of the previous five.

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Depends on how long you’ve owned your California home. Prop 13 really reduced taxes for long-time homeowners. Warren Buffett explains:

Key Aspects of the Buffett Proposition 13 Example:

  • The Disparity: Buffett noted that his $4 million Laguna Beach home had taxes of only $2,264 in 2003, while a second, smaller home ($2 million) he bought later in the 1990s in the same area carried taxes of $12,002.
  • Minimal Increases: In 2003, taxes on his Omaha home increased by $1,920, while the tax on his California home increased by only $23, demonstrating the 2% cap on assessed value increases mandated by Prop 13.
  • Criticism of Fairness: Buffett argued that Proposition 13 created an uneven playing field where long-term owners pay significantly lower taxes than new residents or businesses, even if the properties have identical market values.
  • Context: These comments were made while advising Arnold Schwarzenegger during the 2003 California gubernatorial recall election, highlighting the need for higher property taxes to balance the state budget. [1, 2, 3, 4, 5]

You have to understated the “skim, scam and fraud” built into the system – sometimes it works for you.

intercst

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Ya, good try. Honestly. Convenient you only object to the property taxes and not the rest of it.

But, let’s use YOUR example; again courtesy of Gemini:

Based on the 2017–2018 sale price of approximately $7.9 million to $11 million for his Emerald Bay home, insuring Warren Buffett’s former Laguna Beach house today would likely cost over $20,000 to $40,000+ annually. Costs are driven by high-value, oceanfront luxury insurance premiums in Southern California, which face extreme fire and coastal risks. [1, 2]

Vacant home insurance typically costs 50% to 150% more than standard homeowners insurance. For a multi-million dollar property, these premiums increase substantially due to higher risks of undetected damage (like water leaks) and vandalism. [1, 2, 3, 4]

But wait, it gets better:

Based on the property details from when it was sold in 2018, Warren Buffett’s former ~3,600-square-foot Laguna Beach home in Emerald Bay likely incurred high utility costs, likely totaling several thousand dollars per month for a home of that caliber, even when largely unoccupied.

Utility and Maintenance Costs Estimate

  • Annual Homeowners’ Association Fees: The property came with an annual HOA fee of $9,264 in 2018 ($772/month).

  • Electricity & Water: In Southern California, luxury coastal homes frequently have electric bills that soar into the hundreds or over a thousand dollars in summer months.

  • Total Costs: Considering electricity, water, gas, and landscaping for a 6-bedroom, 7-bathroom home in an exclusive gated community in 2026, monthly expenses for utilities and general, non-luxury maintenance would likely be in the high hundreds or low thousands of dollars, even if the home were minimally occupied.

Thank you for providing a great example to illustrate my point.

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So Flock agrees that old people should be selling their home, not sit on it? {{ LOL }}

Depends on the homeowner’s skill and desire in running a home rental business. And if you hire a property manager, real estate agent and contractors to do the work for you, that eats up a lot of the profit while still giving you the risk that a bad tenant will destroy the place.

I agree with the argument that they should sell because you have a lot of capital tied up in a vacant home. But homeowners tend to be comfortable with having their money tied up in an asset with a poor rate of return.

intercst
(still crying about the 6-figure capital gains tax on my profit from the Avis “short squeeze”.)

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