Just a few years ago, in the aftermath of the Great Recession, Americans were constantly reading about how homeownership had let Americans down. There was red ink everywhere: Not only had stocks lost nearly half of their value between 2007 and 2009, but home prices had declined in virtually every real estate market in the country.
That trend has long since been reversed. Last year, incomes grew an average of 4.7 percent. But even better, their investments have been paying off. Stocks, as based on broad market indexes, have more than tripled in value from their 2009 lows. And in most local markets, home prices have also since recovered.
So, who's cashing in?
Personal finance site MagnifyMoney analyzed five years’ worth of Internal Revenue Service (IRS) data — 2012 to 2016 — to see where American taxpayers are getting the most return on their investments. In particular, we focused on capital gains: a tax on the sale of appreciated assets like real estate and stocks.
Topping the list were Fort Myers, Fla.; San Francisco; and Sarasota, also in Florida. Others in the top 10 include established tech-heavy places like Seattle and Austin, Texas, and somewhat newer tech hubs like Denver.
What is a capital gain?
According to the IRS, a capital gain can arise from a sale of stock, a private business, real estate or art. And while these assets are taxed at differing rates, all may be subject to federal taxes, if they are sold for more than the original purchase price.
Homes are still how most Americans typically accumulate wealth. Overall, 64 percent of American households are homeowner households, according to the most recent U.S. census data. The median value of the primary residence of Americans still exceeds the median value of the stocks and bonds they hold outside of retirement accounts and other managed assets like annuities.
But housing markets are still local, which may in part explain the variance among the 100 largest metropolitan areas we examined for the most capital gains realized from 2012 to 2016.
The second-home factor
Not all home sales will result in a capital gains tax. Currently homeowners only pay a capital gains tax when the gains exceed $250,000 ($500,000 for couples filing jointly), if it’s their primary residence.
But other property — for instance, vacation homes and rental properties — aren’t afforded the same protections from capital gains as a primary residence.
Thus, all the gains from these sales may be subject to capital gains tax, which may explain why we found that many of the cities that top our list are in vacation spots like Florida and Lake Tahoe (considered part of Reno, Nev., by the Census Bureau).
New York and San Francisco on top
It’s probably not a surprise that both New York and San Francisco are near the top of the list. Not only do both have tight residential real estate markets, but both Wall Street and Silicon Valley are homes to dozens of public corporations with thousands of employees. Stocks, whether in the form of compensation given to employees or simply bought and sold on the open market, may also result in significant capital gains.
Finally, local economies may also be a factor in how much in capital gains is realized. Consider two major cities in Texas: Houston and Austin. Despite being fewer than 200 miles apart, Austin ranks significantly higher than Houston on our scale. One explanation: Austin’s tech-heavy economy continues to flourish, while the energy-centric economy of Houston is slogging through a period of depressed energy prices, weighing on the residential real estate market there.
#1 Fort Myers, Fla.
Cashing In score: 98 (Scores are rounded in this list.)
By far, the place with the most cashing-in was Fort Myers, on Florida’s west coast. With a relatively small population of well-off retirees, the city and surrounding area realized nearly $103,000 in capital gains per resident, easily eclipsing other American cities. Moreover, with a capital gain appearing on nearly one in four returns over the past five years, there’s been significant activity in the region.
#2 San Francisco
Cashing In score: 94
The City by the Bay is famous for both its tight real estate market as well as Silicon Valley, and the data bear this out. Even with a significantly large population, San Francisco realized more than $76,000 in capital gains per resident, many of the realized gains likely the result of selling stocks which have greatly appreciated in value.
#3 Sarasota, Fla.
Cashing In score: 75
Sarasota, which, like Fort Myers, is on the Sunshine State’s west coast, has the distinction of having more federal tax returns with a capital gain than any other city in the nation. The capital gains per resident, at more than $56,000, are less than those realized in Fort Myers (as well as another Florida city on our list, No. 9 Miami).
#4 New York
Cashing In score: 70
The nation's largest city also sports large gains: more than $60,000 in capital gains per resident over the five-year period we examined. One in five returns included some sort of capital gain. And where the average price of a home in Manhattan has now exceeded $1 million, a healthy percentage of the gains realized were from real estate sales.
Cashing In score: 63
Another city with a hot real estate market, Boston realized more than $48,000 of capital gains per resident from 2012-2016, while, as in New York, 20 percent of federal filings from the Boston area included some sort of capital gain.
MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.