Need a Tax Break?
I am a real estate expert, not a tax expert. In order to be of help to my clients, general knowledge of taxation when they buy or sell real estate is helpful, since almost all transactions have some tax implications. I recommend clients consult their tax expert, sooner rather than later.
The very general information that I list below, should never be pursued without advise from with a professional tax advisor. Tax time is here and some of the areas to consider reviewing with your tax advisor are:
$500,000.00 Tax Free
WHEN A MARRIED COUPLE SELL A HOME that they owned (and occupied) for 2 years (of the last 5 years), with no requirement to re-invest your gain into another home like in the past when, to avoid gain, another home of equal, or greater value had to be purchased. This is no longer true. This applies to all ages, not just seniors.
$250,000.00 is the tax free when a single person sells as above. So if you are thinking about getting married and selling a property, a little planning might add up to $250,000.00.
You can "Buy Down"
If you are thinking of scaling down, how much gain have you realized to date since you purchased the property? If the amount of your gain is approaching $500,000.00, it may be time to consider the move now, instead of putting it off.
Convert to Income Property
While to most couples, a $500,000.00 tax break sounds generous and substantial, with bay area housing prices, some couples have realized a greater gain. Some movie out of their home, rent it to create income property, which then may qualify them to do a 1031 Tax deferred exchange.
Family-Related Property Tax Bareaks
Deeding to spouse No re-assessment of property tax basis. Buying or Selling to child, parent or grandparent. No re-assessment of property tax basis.
Age-Related Property Tax Breaks
When I first started selling real estate, I saw a number of people taxed out of their homes, as their property taxes became more than their mortgage payment had ever been on their property. I also saw many elder people stay in large, or unsuitable homes.
Take It With You
After 55 years of age, a San Mateo County property tax can be taken to the next property if the new property you purchase is less than the one being sold.
In addition to Proposition 13 (which keeps property taxes based on purchase amount), it is reassuring to know that if you wish to buy a smaller home, you will not be penalized as in the past and you can keep an existing property tax basis
If, a number of years ago, you bought a home for $300,000, with an annual tax basis of $3,000, and over the years this home has appreciated to a value of $1,000,000, your tax basis is still $3,000. However it may now cost, at current prices, $650,000 to buy a smaller home. Without this break, your property taxes would be around $6,500, or more than double your previous taxes, even though your are moving to smaller, less expensive home.
Reciprocal Property Tax Transfer
After 55 years of age, some California counties allow your existing property tax basis to be transferred to their county.
If you are thinking of moving to one or two different counties, you might want to check if one or both of the counties being considered honors the property tax basis
Plan ahead and maximize your breaks and benefits!