Getting older is certain, getting wiser is likely, getting happier is what you do with your attitude and getting tax breaks is what this commentary explains.
One of the biggest fears for seniors (and others), is running out of money in retirement and the threat of increasing taxes. People who have built up equity in their homes and thus having lower tax rates can thank California’s Proposition 13, which limits property tax increases.
For seniors wishing to sell their home, challenges include the capital gains tax, the thought of higher property taxes for a replacement home and possibly the additional 3.8 percent tax on unearned income via Obamacare. Help is at hand!
Do you already have a low property tax base? California Proposition 60 (one owner over 55), along with the IRS capital gains exclusion for owner-occupied properties, can make the potential tax bites from selling your existing home and buying a replacement one much, much less!
You can take the existing low property tax base with you to a replacement home of equal or lesser value, within plus or minus two years. You also could have no capital gains tax liability on the profit of your home sale for either $250,000 (single) or $500,000 (married), as long as you have lived in the property for two of the past five years.
Can you see the possibilities? Sell your current home that has appreciated, use some of that money to buy a more convenient smaller home or condo (taking your low property tax base with you); and use the rest of the sale proceeds to make your life a little easier or more enjoyable.
And now, tax your brain cells for the fine print on getting the most from Proposition 60 and the capital gains exclusion. Proposition 60 tax transfer is available in all California counties and is a one-time use only.
Proposition 90 allows a property tax transfer between any California county and certain other counties. There are 10 counties as of 2014, with San Diego accepting transfer of tax base from any other county. You can take the transfer within a plus or minus two-year window from the sale of your existing home, and the replacement home must also be owner-occupied and of equal or lesser value.
A 5 percent inflation factor is available for buying the new property, if done within one year and a 10 percent factor can be used if buying after one year, though the new purchase cannot go past the total two-year window. You can also build a new home using Proposition 60.