Monthly Archives: May 2022

Homestead Capital Gains Tax By Jeff Stewart, CCIM


During an income tax revision in 2003, the IRS published a change to the tax code for homeowners. Known as the Section 121 Exclusion, it outlines the rules in which homeowners can limit the capital gains tax on the sale of their primary residence.

Section 121 excludes taxes on the first $250,000 of capital gains for individuals and $500,000 for married couples filing jointly when selling their home . . . with a critical limitation.  In the immediate five years prior to the sale of the residence, the sellers must have occupied the home an aggregate of at least two years.  They must also provide documentation of capital improvements when establishing the tax basis, much like rent property. Last year, I had several clients who had gains well above the exclusion.

I bring this to your attention because very few homeowners keep adequate records of their capital improvements on their homes. Most homeowners never dream that they will live anywhere long enough to have a $500,000 capital gain on the sale of their residence, but in this market it can happen. It is critical to keep good records to prove capital improvements or risk paying too much to the IRS.

The Austin Affordability Problem By Jeff Stewart, CCIM, SRES



Affordability. We need to find some solutions to the housing affordability problem if we want our children and their children to remain in Austin. The Texas A & M Real Estate Research Center’s chart shown here illustrates Austin’s growing affordability problem compared to other major Texas cities.

At the time of this writing, I searched the MLS for single family homes (not condos or manufactured) with an Austin mailing address, and in the the price range of $10,000-$375,000. I found 14 homes actively for sale. Only 7 of those homes were inside the city limits and only one looked like a house I would want to see clients buy.

The Research Center is constantly monitoring the affordability problem.  In the recent edition of their Tierra Grande Magazine (provided to all agents), they made cost projections for potential increases in interest rates and property taxes.  While interest rate hikes are pretty obvious, their property tax projection should alarm every Texas homeowner.

The current median priced home for the Austin / Round Rock area is just under $476,700.  For this purpose, we are going to round up and use $500,000 for our example. The Research Center chose to assume annual property taxes would stay at a 3% average tax rate, which places the tax burden on our example at $15,000 the first year. They also estimated that


values could increase an average of 10% per year.  Using these assumptions, the Research Center projects that in five years the taxes would climb to $24,158, $38,906 in ten years, and if all assumptions held true, taxes would be a crushing $62,659 in fifteen years!   This appears unsustainable to me.

It is important to note that the 2017 Tax Cuts and Jobs Act placed a $10,000 cap (for married couples) on the itemized deduction for state and local taxes, including property taxes.  In light of the rapidly growing tax burden in our earlier scenario, this was a significant tax increase  . . . that also affects the cost of homeownership.

Still on affordability, an interesting construction possibility that still has much to prove is the 3-D printed wall system.  The January 2022 edition of the Texas Coop Power magazine has an informative article about the 3-D construction process.  It has examples of recently built homes in East Austin and Army barracks at Camp Swift.  One home was featured in SxSW, as well.

The 3-D builder, ICON, is an Austin based company.  According to the article, their first  project was a welcome center and six tiny houses at Community First! Village. ICON and Lennar Homes have announced they plan to build 100 homes in the Austin area using the “printing” process. No word on where yet, but Lennar did say the homes would be similarly priced to those built with traditional construction. While not more affordable than conventional houses at this point, the goal is to be able to substantially increase supply. Ideally, a significant increase in inventory would eventually aid the affordability factor. For more information, go to

Another alternative construction process is taking place in my neighborhood. A house was recently leveled, but instead of a new traditional slab, the builder used piers of galvanized steel which were screwed into the ground.  You can imagine the surprise of the neighbors when a gigantic crane appeared and began to assemble manufactured home components that were built at a local mobile home plant.  The structure was largely assembled in two days.

The builder told me that he chose this method because the inspections were mostly done in the factory and not by City inspectors. Also, he believes he can complete the home in a fraction of the time a site-built home would require due to city inspections and shortages of materials and labor. I will keep you posted on the ultimate sales price and well this manufactured home is received in the marketplace.