Brooklyn Secret Agent: The Trouble with Downsizing

Today we bring you the 16th anonymous weekly column about real estate by one of the most experienced agents in Brooklyn:
One reason inventory is so tight in brownstone Brooklyn is that there are so many downsides to downsizing. Here are a few — maybe a creative type might use them to drum up a great purchase.

When a brownstone becomes an empty nest, thoughts turn to downsizing. Visions of high sales prices turning into bulging bank accounts abound. I have been called in to discuss the sale many times. Once the subject of taxes comes up, the visions are deflated. (Please note that I am NOT a tax advisor.) Capital gains taxes will eat a substantial amount of profit and real property transfer taxes will be due. Many sellers stop dead in their tracks when they learn those numbers and vow to be carried out of the house on a box.

If a seller can get past the taxes, the talk turns to “where will we live.” Most residents of brownstone Brooklyn would love to stay in their welcoming and walkable neighborhoods. The search begins for a full service coop or condo with a doorman and an elevator. And guess what? There are hardly any. Usually these folks would like to move into a renovated place, which depletes the supply even further. And if they can find such a home, it is likely to use up the vast majority of the sales price of their house.

Then talk turns to renting. While that might be a good option, most rental apartments in Brooklyn are geared more toward those just out of school than those just out of a grand old townhouse. The compromises look insurmountable.

So how can one downsize and capitalize on the value of a townhouse? The sad thing is that it usually requires leaving Brooklyn. Decamping to a much less expensive area makes it all work. Taxes can be paid, profits can be banked, and life goes on.

18 Comment

  • this makes very little sense to me. brooklyn is full of elevator buildings. I guess no doorman, but if they’re also considering a move to a place with no live-in super then I guess the doorman thing isn’t really a deal breaker.

  • Probably turns a lot of Democrats to republicans with the cap gains implications!!!!!

  • you most certainly are not a finacial whiz. whizzer perhaps. there aren’t cap gains taxes on your residence… when i leave, i want it to be “on a box” as you say, so much more evocative, rather than in one. i would just like to understand who you are trying to manipulate with this, and how, and for what purpose. perhaps just shake some trees and see what falls out??

    • You still think it can be “rolled” into another property!!!!!

      BWAHAHAHAHAHAHAHAHA

      $250,000 deduction for singles, $500,000 for married couple, after that…taxes. And that only applies to the primary residence “unit,” the rental units will be fully taxed – amortized depreciation.

  • Please make stop.

    Worst. Series. Evah.

  • The capital gains are scary. Though I have years before my children would be able to take over my brownstone, I think I would just rent it out especially since moving in this area has become sooooo… trendy.

  • What is he talking about? It’s very hard for people who have been in one place for a long time to move. It’s surely much more about attachment than taxation….

    My mother keeps talking about moving but she persists in the 7 bedroom 5 bathroom place we grew up in. And she hasn’t even converted any of the rooms to, say, a gym, or a real office….. Attachment..

  • How utterly stupid. If I’m making 700k profit on my house which has doubled in value in 15 years, I pay (700-500) x 20% = 20,000 (if married). A reasonable price to pay for having use of a brownstone and not doing much else, don’t you think?

  • Yes, cmu but many people can’t seem to get their brains wrapped around paying anything. Many may be getting wrong or conflicting advice but I suspect most just don’t want to move, ands why should they if they don’t have to.

    The other issue is that they’ll surely pay higher real estate taxes for practically anyplace they move, even if they downsize and ESPECIALLY if they get a condo or coop here!!!!!

  • Yes I just feel so terribly for people having to suffer the unique American horror of paying taxes on their multi mullion dollar properties. Give me a break.

  • And brownstone Brooklyn needs more new buildings, done in a historic style suitable to brownstone Brooklyn *in particular* — with 1BRs to 4BRs

  • I would have thought that “most” brownstones have some rental income and that “most” owners live in the duplex with 2 or 3 bedrooms. If those kids in the 3 bedroom duplex are old enough to move out, chances are the owner bought back when prices were cheap and they are going to make a fat enough profit to pay their taxes and still come out way ahead. Typically, children do not pay rent and so the nut the parents are paying is exactly the same. And why would a house owner with tenants (probably) need to make the leap to a full service apartment?
    This column should be renamed “clutching at straws”.

  • Does Brownstoner have the capacity to take a poll? If so, can we take a poll to eliminate this column? Before it was just useless but now it is actually misinforming people with completely inaccurate tax implications of selling real estate.

  • I don’t understand all the harsh commentary re this article. In fact, some people do choose to down-size when they are older, even if some of the commenters would not. This is not such a far-fetched scenario; I know of people who sell when they don’t need so much space and don’t want to be burdened with maintaining a house My parents, for example. And there are tax consequences (I too am not a tax adviser, but what fool would take tax advice from the internet??). A seller gets a once-in-a-lifetime cap gain deduction for selling a residence. If you sold a residence before, even decades ago, and took the deduction, you don’t get another. This applies to all homeonwners, even if they are not selling a “multimillion dollar” brownstone mansion. I think it is a sensible to point out that the windfall is not always as big as the seller hoped for and people should be prepared to deal with that.