Sell with $500k for tax benefit?

10 Replies

My primary home has gained its value more than 500 K since my purchase. Further gain will be taxed as ordinary income. Should I sell the current home and buy a new one to take advantage of the tax benefit again?

Not a good idea. Any SFR in Bay Area goes for over $1M. Let's say you bought your property for $1M and its valued at $1.5M now. Here are the reasons:
1) Buy selling it now and then buying another property at $1.5M would increase your property taxes as property taxes would go with purchase price of $1.5M whereas you most probably will be paying way less taxes on your current residence.
2) you would be starting a new mortgage cycle and adding another 30 years of interest. You should know that with any mortgage, significant part of interest is charged up front.
3) you can't write off interest on new mortgage originated over $750K. This is another big issue in SF BAY AREA.

I would say if you want to move eventually, yes, planning to maximize the 500k exclusion is wise. We have another post on someone who has a few million in gain and can't afford to sell and buy a similar property since the tax bill would be several hundred thousand.

Originally posted by @Alpesh Parmar :

Not a good idea. Any SFR in Bay Area goes for over $1M. Let's say you bought your property for $1M and its valued at $1.5M now. Here are the reasons:
1) Buy selling it now and then buying another property at $1.5M would increase your property taxes as property taxes would go with purchase price of $1.5M whereas you most probably will be paying way less taxes on your current residence.
2) you would be starting a new mortgage cycle and adding another 30 years of interest. You should know that with any mortgage, significant part of interest is charged up front.
3) you can't write off interest on new mortgage originated over $750K. This is another big issue in SF BAY AREA.

Since you live in Milpitas, with regards to your Prop 13 tax basis, if you are 55 years of age or older, check with the Santa Clara County Tax Assessor.

https://www.sccassessor.org/index.php/forms-and-publications/forms/60-ah-transfer-your-assessed-value-prop-60-90

When I sold my long-time San Jose home three years ago, I considered my tax basis transfer options if I remained in California, but decided to retire to a state with a lower cost of living and no state income tax.

Jeongmin,
A couple of posts here really nailed it in regards to capital gains taxation vs ordinary income. It really depends on what your goals are? If you are looking to access that capital like many investors are then your best best is a Heloc.

Originally posted by @Jeongmin J. :

My primary home has gained its value more than 500 K since my purchase. Further gain will be taxed as ordinary income. Should I sell the current home and buy a new one to take advantage of the tax benefit again?

I am in same boat , my 1 mm purchase 5 years back is now worth 1.5-1.6 mm 

I am not selling. I need a place to live. I don't care about the fact that i have to pay capital gains tax for >500k. It should be worth min 2mm if i keep it another 5 years.