Capital gains within California

6 Replies

Hello,

I am selling my house in Oakland Ca. and moving to San Diego Ca. A friend told me there may be a way to defer capital gains taxes if purchasing a home within a certain time frame. Does anyone know anything about this? It was my understanding that I will get a 250k deduction but that was essentially it other than investments I've made to my current home. Any other savings suggestions when it comes to capital gains taxes?

Much appreciated and thank you

Darren

Darren,

You need to compute your tax 'basis', because yes you'll get the $250k (or $500k if you're married) but often some of the improvements and $ you've put into it will come into play if you're over the $250k.  You can look up a calculator anywhere on line.

I ran into the same thing when I sold my house in San Francisco, and it helped.

@Darren Gregory

Your friend refers to a very old (and long dead) rule, which is why it's best not to ask friends for legal, tax or medical advice :)

There are only two ways to control capital gain taxes on selling your own home, and they can be combined. Neither rule is tied to buying another house. It does not matter what you do with the money.

#1 - exclusion of the gain. Basically, if you lived in your house for more than 2 years and you're single - the first $250k of your gain is tax-free. (There's a lot of fine print going with this rule.)

#2 - owner financing, aka seller financing, aka an installment sale. If you allow the buyer to pay you over several years, instead of the whole amount right away - then you can spread your tax over several years and maybe even reduce it in the process. Of course, you will be risking not getting paid.

You also want to calculate your gain carefully. It's not simply the difference between the sale price and the purchase price. You will also subtract part of the closing costs on both ends, cost of improvements over the life of the property, and costs of preparing the property for sale.

Thank you Diane, I appreciate the information. I am single so the 250k applies. I was thrown originally by something about deferring the payments (till when I don't know) so that I have a bit more purchasing power on the other end.

Thank you again for taking the time to reply

Darren

Thank you Michael,

I knew the first rule you mentioned but not the 2nd. I had the same understanding of what you were telling me but when my friend mentioned this I thought perhaps I missed something. 

Thank you so much for your input, I very much appreciate you taking the time to get back to me

Darren

Hi Darren,

Diane and Michael are correct; under Section 121 of the Internal Revenue Code you (as a single individual) can exclude $250,000 of capital gains from your taxes if you have owned and resided in the house as your personal residence for 2 out of the 5 years prior to the date of sale.  There are additional rules relating to this, but that is the gist of it.  California conforms to this, so you also would be able to exclude the gain from your California income taxes.

I don't know your age so this may not apply, but under Prop 60 if you are 55 or older there is a 1-time chance to transfer your property-tax base from your old primary residence to your new one.  There are a number of rules relating to that, so if you meet the age requirement you should talk to someone about this.

Hello Brian and thank you. I am turning 55 soon and waiting to sell my house till after that date so I am aware of that rule. And luckily both counties are included in this upcoming move of mine.

There's so much so it's a lot to take in but I seem to be making the right progress!

Again, thank  you for taking the time and I appreciate it!! 

Darren