Maureen and Antoinette,

I’ve lived in my home for 19 years and am ready to downsize. As I prepare to list my home for sale, what tax advantages or penalties should I plan for? I want to take advantage of every cost-saving benefit available to me! Thank you, Norma F.

Thanks for your great question, Norma. First of all, we are not tax consultants and any detailed information related to your particular scenario should be reviewed with your qualified California tax or finance professional. What we can do is give you some general information that can guide you through the process.

When selling a property, there are many factors that affect your tax liability. Two of the biggest considerations are capital gains taxes and property taxes. Let’s start with capital gains taxes. You indicated you have been in your home for 19 years. If you have lived in the home two out of the last five years, that puts your home into the category of a primary residence. If you sell your primary residence for more than you paid for it, the federal government will allow for some deductions to offset any “profit.” Your tax filing status of married or single determines the amount you can deduct ($250,000 for a single person, and $500,000 for a couple). If you exceed this amount of gain, there could be what is classified as a capital gains tax. There are several factors that affect the amount of taxes due, such as any capital improvements you made to home or property. In addition, your closing costs to sell the property can also be used as a deduction. Please consult a qualified California Tax specialist for the details on what deductions you may be eligible for.

Another factor to consider is keeping what must be your low property tax base, since you have owned your property for 19 years. Effective April 1, 2021, qualified residents aged 55 and older, severely disabled, or victims of a wildfire or natural disaster can sell their primary residence in California and transfer their base value to a newly acquired home, as long as that home is in a qualifying county in California and will be their primary residence. The replacement property that is acquired must adhere to the “equal or less than” rule and the purchase of the new residence must take place within two years of the sale of the original residence. These benefits are meant to prevent a dramatic increase in property taxes and serve as incentives for qualified people to afford downsizing or moving to another county within California.

Again, tax saving options vary and apply based on each homeowner’s individual scenario. We encourage you to discuss your specific situation with a qualified California Tax specialist. We would be happy to help you get more information on these programs to see how they might benefit you as you prepare to sell your property. Selling your home and buying another is a very important and subtly nuanced process— make sure you are working with experienced professionals to help you navigate and take advantage of every cost-saving benefit during the process.

Contact Maureen Tess-Fieberg and Antoinette Embry at [email protected].