Interactive Map: Most Home Sales Will Not Likely Lead to Fair Share Tax Payments

Key Takeaways

  • In a home sale, only the capital gain (the difference between the sale price and previous purchase price), not the sale price, is considered taxable income and potentially subject to the proposed Fair Share tax.
  • In 2021, 2% of homes sold for a gain of more than $1 million, and less than 1% of homes sold for a gain of $1.5 million or more.

Even in Massachusetts’ hot housing market with many homes selling for over $1 million, the vast majority of all home sales will not subject the home sellers to a proposed “millionaire’s tax.” On November 8, 2022, voters will decide on the Fair Share tax which if passed, would create an additional 4 percent tax on taxable income over $1 million to support education and transportation. However, because home sellers are not taxed on the sale price of a home but rather on the capital gain from the sale of a home, most sales will not push them over the $1 million threshold.

Housing Sales and Capital Gains

When a seller sells a home for more than the purchase price, this difference is known as a capital gain (the difference between the sale price and previous purchase price). For example, if a home were initially purchased at $450,000 and eventually sold at $1,000,000, the capital gain would be $550,000. If the same home sold for $1,450,001, the capital gain would be $1,000,001 but the taxable amount of a capital gain from a home sale is almost always reduced by significant deductions (see below).

Would Most Home Sellers Likely Be Subject to the Fair Share Tax?

Only a very small portion of households in Massachusetts actually sell a home each year, and most of those sales produce a capital gain of less than $1 million. Even in the current housing market, an analysis of 2021 housing data1 shows that only 2% of all home sellers sold their homes for a gain of more than $1 million.

On top of that, there are several types of deductions home sellers can use to further reduce their taxable capital gain from selling a home. Most home sellers would be eligible for a tax exemption that allows taxpayers to exclude up to $250,000 (or $500,000 if married filing jointly) of capital gains when selling a primary residence.2 With these deductions, most home sellers would need to sell a home for significantly more than $1 million over their previous purchase price before their taxable income reached the Fair Share threshold.3 Even in 2021, a year with rapidly rising home costs and high inflation, less than 1% of all home sales netted the seller a capital gain of more than $1.5 million.4

2021 Residential Home Sales in Massachusetts
Capital GainsNumber of Homes SoldShare of Residential Sales
Under $1M5100,44898.0%
Above $1M2,0992.0%
Above $1.5M8950.9%
Total 2021 Home Sales6102,547100.0%
Source: The Warren Group; A Massachusetts-based national real estate and mortgage data provider. Data provided for homes sold throughout Calendar Year 2021.

Footnotes
1The Warren Group; A Massachusetts-based national real estate and mortgage data provider. Data provided for homes sold throughout Calendar Year 2021.

2Commonwealth of Massachusetts. Governor’s Budget Fiscal Year 2023 Recommendations. Personal Income Tax Exclusions from Gross Income. Tax Item 1.021 Exemption of Capital Gains on Home Sales.

3Home sellers realizing gains of $1.5 million (if married) could potentially use the $500,000 capital gains exemption to bring the gain down to $1 million, which is below the Fair Share taxable income threshold

4The Warren Group; A Massachusetts-based national real estate and mortgage data provider. Data provided for homes sold throughout Calendar Year 2021.

5Includes new-built homes and homes sold at no gain or at a loss.

6Includes all homes sold.

Latest

Memo to Governor Healey on Ways to Ensure Effective Implementation of the Fair Share Amendment

As Massachusetts voters have amended the state constitution to include a 4 percent surtax on taxable income over $1 million, MassBudget would like to offer policy suggestions to assist the Commonwealth in protecting this revenue and ensuring that it is directed to education and transportation, as specified in the amendment.

Read More →

Letter to Governor-elect Healey and Lieutenant Governor-elect Driscoll on a Family Tax Credit

A letter to Governor-elect Healey and Lieutenant Governor-elect Driscoll on a consolidating different family tax supports into one simpler, fully refundable Family Tax Credit.

Read More →

Massachusetts Capital Budget 101

The capital budgeting process takes place largely out of the public eye but is responsible for building and maintaining critical state infrastructure. Learn more about it here.

Read More →

Get news from Massachusetts Budget and Policy Center in your inbox.