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					               SELLING A                           move than do residents of other
                                                   states:
                                                                                            per year more in property taxes, and
                                                                                            a capital gains tax bill of $285,000.
                                                                                                                                               The Solutions
                                                                                                                                               The law allows owners to implement strategies to
      LONG-HELD HOME                                Proposition 13 drastically limits          Property Tax:                                  reduce future taxes, and to encourage families to
                                                     the rate of increase in property                                                          make housing decisions that make sense for
                                                     tax bills, meaning that owners         Tax on New Home:            $12,000                them in their current stage of life.
                                                     may face big tax hikes if they sell       annually (at one percent of $1.2
                                                     and purchase a new home here;             million purchase price)
                                                    our rapid price appreciation           Less: Tax on Sold Home: $1,000                     Property Taxes:
  Is it time to pack up your memories, and take      means large capital gains when            annually (at one percent of
                                                     homes are sold after many years.          $50,000, increasing at 2%/year                   In California law, there are several ways
them to a new home? Congratulations!
                                                                                               over time).                                     to eliminate property tax hikes when
Odds are, your home has appreciated                  The sale of a long-held home often
tremendously, giving you security in retirement,                                                                                               buying a new home:
                                                   triggers much higher property tax        Increased tax bill:
and a source of equity out of which to fund        payments on a new California home,                                                           If you are over 55 or disabled,
education bills, business start-ups or new home    and capital gains taxes on the gain                           $11,000 annually              Proposition 60 allows home-owners to
purchases for loved ones.                          from the sold home that exceed the                                                          transfer their current assessment (and
                                                   current $500,000 per-couple              Capital Gains Tax:                                 tax bill) to a new home if:
  If you’ve owned your home for many years, you    ($250,000 per single person)
face issues that your newcomer neighbors don’t.    exclusion from tax.                      Original value:                  $50,000            Both homes are in the same county
You may face sizeable capital gains taxes, an
increase in property taxes, and so on. This          For instance, assume a couple bought
                                                                                            Sales price:                  $1,200,000            The original home is sold and the
                                                   a home in 1978 for $50,000, and it is
factsheet outlines some ideas for reducing or                                                                                                    new home is bought within two years
                                                   now worth $1.2 million. Property
eliminating the financial downsides of selling                                              Net capital gain:1 $1,150,000                        (earlier or later);
                                                   taxes on the home are likely below
your appreciated home.                             $1,000 annually, based on an annual      Capital gain tax on gain due:                       The new home is priced at a level
                                                   increase limited to two percent.
                                                                                                                                                 equal to or less than the value of the
                                                                                                                 Approx. $285,000                original home (with upward inflation
                                                   Excluding the effects of transaction
 Background                                        costs and improvements over the                                                               adjustments if the new home is
                                                   years, if the couple sold that house                                                          bought a year or two later); and
 Californians have good reason to be               today and bought an identical home
more concerned about the effects of a              next door, they might face $11,000                                                           The homeowner applies for an
                                                                                            1
                                                                                                Excludes transaction costs, etc. from basis.
   exemption from county offices              residence exclusion ($500,000 in          $250,000 or $500,000 in cash tax-

                                                                                                                                       SELLING A
   (contact us for a form).                   excluded capital gains per couple and     free, and with the balance of your
                                              $250,000 per individual on any home       gain reinvested in perhaps a rental
  Proposition 90 extends the geographic       held for more than two years),            property or two in the area.
limits of Proposition 60 to other
counties in the state: Owners who buy
in Alameda, Kern, Los Angeles, Modoc,
                                              Williamson describes:

                                               Starker 1031 Tax-Deferred                Under some circumstances, you
                                                                                                                                      LONG-HELD
Orange, Santa Clara, San Diego, San
Mateo and Ventura counties can also
                                                Exchanges
                                               Installment Sales
                                                                                        could even buy and manage a rental
                                                                                        property, and then at some point in              HOME
carry the assessment exemption to their        Private Annuity Trusts                  the future move into it as your
new homes (this list changes regularly,                                                 primary residence. When you
                                               Charitable Remainder Trusts
so check before making a final decision).                                               eventually sell, you will again be
                                                                                        eligible for the $500,000/$250,000
                                                                                                                                 Strategies to Reduce Taxes
 If you are selling your home to a
                                                Each of these strategies, if
                                              implemented appropriately, can
                                                                                        capital gains exclusion. This strategy      and Other Costs Paid
family member, Proposition 58
exempts from reassessment (and the
                                              eliminate or at least defer capital
                                                                                        can work well for those who own a
                                                                                        rental in a vacation area that they
                                                                                                                                 When You Sell Your Home
                                              gains taxes due at the time you sell a
higher tax bill) the transfer of real                                                   plan to retire to in the future.
                                              heavily appreciated home. In some
property between spouses, and transfers                                                 Contact us for a detailed factsheet on
                                              cases, you may donate the value of                                                            A quick factsheet produced by :
of the principal residence and the first $1                                             this strategy.
                                              your home (generating a tax
million of other real property between
                                              deduction) while continuing to live in                                                Maureen Kennedy, Licensed Real Estate Broker
parent and child. (Proposition 193
                                              it.                                                                                           Prudential California Realty
exempts inherit-ances from grandparents                                                 Piedmont Schools                                          510.290.8535
from reassessments and higher tax bills).                                                                                                Kennedy@MaureenKennedy.Net
                                                Another idea is to rent your home,
                                              and then sell it. Under new IRS            Don’t forget that Piedmont
Capital Gains Tax:                                                                      households with a child who has                                  and
                                              rules, your home can be considered
                                              both a personal residence (eligible for   attended Piedmont High School for                           Dewey Watson
  In his book Selling Real Estate             the $500,000 exclusion) and an            9th-11th grades may move out of                              Tax Attorney
without Paying Taxes (Dearborn,               investment property (whose gains          town and petition the school district                 Tierney, Watson and Healey
2003), thoughtful and tax-conservative        can be exchanged into a new               for an inter-district transfer, which                        415.357.2087
author Richard T. Williamson outlines         investment property) if it is both        will be granted. It’s a great way to                     dewey@tw2law.com
several strategies to reduce or defer taxes   lived in and rented during the five       save a year of` higher taxes and
as you sell your home. In addition to                                                   mortgages!                               Consult your tax and legal advisors before making any
                                              year period. This “§121-§1031”                                                                      home sale decisions.
taking advantage of the primary               exchange would leave you with

				
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posted:9/20/2012
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