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Proposition 60 and 1031 Tax laws

Two Ways to Move Up or Down
in Laguna Niguel and Dana Point.

Many empty-nesters would like to move but do not want to pay higher property taxes. Don’t forget Proposition 60 is there to help you. Prop 60 allows you to sell one time and buy a different home at the same or lower price and move your tax base. Let’s say you bought that beautiful 5 bedroom home twenty years ago for $300,000 and you can sell it today for $1 million. Your tax base is the “adjusted base year value” of the home you are selling. If either the husband or wife is over 55 years old then you may sell your current home and buy a smaller home closer to the beach or maybe a townhome without the exterior maintenance to worry about and transfer your tax base. This works within Orange County and is reciprocal with certain other counties who have cooperated with the law. An appraisal may be necessary. If you buy a new home or a new build two years later you may buy up to 110% of the value of the original sale. Make sure to check with your tax professional.

Remember the 1031? This federal rule allows investors to do a “like kind exchange” of property which “defers” the tax consequences to a later time. You may sell one property or land and buy two. You may sell two or three and buy one. Or you may sell and buy into a Real Estate Investment Trust of some kind. I find that homeowners still mix up the property tax laws. When you sell a personal residence you may take the gain tax free, up to $250,000 per individual or $500,000 for a couple. If you bought for $300K and sold for $1 million you may take $500K of the profit tax free. Don’t forget to add in the money spent on the upgrades to the house and your costs of sale. If you paid $300K and added $100K and it costs $50K to sell then with the $500K tax free you may owe taxes on the $50K remaining. These rules apply whether you buy another home or not. If you’re confused, call or text me.

If you own investment property and sell, then you will owe taxes on the gain and recapture of the depreciation. One way around paying this is to sell your investment properties and buy under the 1031 rule and rent the new property out for a period of time. Then sell your personal home and move into the rental property. After five years the rental property converts to a personal property again. You have now removed the deferred taxes. As always please check with your tax adviser in case these rules change.

Call me for a free market analysis of your home. You may be surprised at the recent values.

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