Capital gains tax rates are set to increase at the end of the year, and the impending change has wealthy homeowners scrambling to sell before the Jan. 1 deadline.
"I have clients in contract who, if they close before the end of the year, the home is one price, and if they close after Jan. 1, it's another, because of capital gains," said Jill Hertzberg, a broker associate for The Jills, a luxury real estate firm in Miami.
Come Jan. 1, the Bush Era tax break that put the minimum tax on capital gains taxes at 0 percent will be gone. Instead, there will be a minimum 10 percent federal tax on long-term gains, with the cap raised from 15 percent to 20 percent.
Capital gains tax increases will affect the entire real estate market, not just the luxury niche. Whenever a home is sold, the seller is taxed on the gains or profit he made. The tax rate is based on the amount of time the seller owned, the home, purchase and sale price, and any renovations.
For the owners of million-dollar homes, the difference between the current tax rate and the new rate could mean a significant chunk of money.
"No one really knows what's going to happen next, but some people are looking to sell," said Oren Alexander of The Alexander Group and Prudential Douglas Elliman. "The real estate market has increased in New York City in the past two years, and their properties are worth more than they paid. So people are going to rush to sell property before the year ends."
While realtors we spoke to said they had seen more luxury homeowners get serious about selling their homes since the November election, some have been considering a sale for months.
Teke Wiggin at AOL Real Estate noted in August that average sales of homes priced at $1 million or above were up more than 23 percent from the previous year, and that average sales price in the million-plus category had decreased 12 percent from a year earlier.
"That could be a sign that sellers are becoming more willing to accept lower offers," he wrote.
And CNBC's Robert Frank called it "The Mansion Cliff" in July, explaining:
Real-estate experts say that as more of the wealthy sell out of fear of a tax increase, they could drive up inventory and lower prices in the top of the real estate market, which has been one of the few bright spots in the economy. Any softening at the high end, or a spike in inventory, could ripple through the housing market and add new pressure to prices, although it could also increase sales volume.
Seems like we can still expect to see some blockbuster properties hit the market before New Year's Eve.
More From Business Insider