Moving to a Single-Floor Home: A Dream Come True
If you are tired of climbing the stairs each night just to go to sleep in the hottest part of the house, then this is for you. Imagine a home where all the living space is on one level, providing comfort, convenience and a sigh of relief. The idea of moving to a single floor home may seem daunting, but with the benefits it offers, it can be a dream come true for many.
The Struggle of Climbing Stairs. Life with a multi-level house can be physically demanding, especially as we age. Climbing stairs can become a daily challenge, and it often becomes more difficult during hot weather or when health issues arise. The desire for a simpler living arrangement becomes increasingly appealing.
Most people don't know that they have an option to move to a single-floor home and still keep their low tax rates intact. Two propositions that can make this possible are Prop 60 and Prop 90. These propositions allow homeowners at their primary residence to transfer their tax base rate within the same county.
While Prop 60 and Prop 90 provided significant benefits, there were still some limitations. However, Proposition 19 comes as a solution, fixing a few missed aspects of Prop 60 and Prop 90. With Prop 19, homeowners who are over 55 years old, disabled, or victims of natural disasters can now transfer their tax base rate to a new property in any California county. This means more flexibility and options for those seeking a single-floor home.
As a Realtor, I must emphasize that I cannot give tax advice. It is essential to consult with your Certified Public Accountant (CPA) or a tax professional to understand all the implications of the tax base rate transfer. They can provide personalized advice based on your unique situation, ensuring you make an informed decision.
While I cannot provide tax advice, as a Realtor, I can help you find a home that perfectly suits your needs and preferences. Whether you're looking for a single-floor home with a beautiful garden or a cozy space near essential amenities, I have the expertise to assist you in finding your dream home.
Moving to a single-floor home is not just about convenience; it's also about embracing a new lifestyle. Say goodbye to the stress of climbing stairs and welcome a space that fosters comfort and ease. Make the change today and discover a more relaxed and enjoyable way of living.
The journey to finding a single-floor home might seem challenging, but with Prop 60, Prop 90, and Prop 19 in place, it becomes a real possibility. Remember to consult with your CPA or tax professional to fully understand the implications of transferring your tax base rate. As a Realtor, I am here to help you in your quest to find the perfect single-floor home that aligns with your lifestyle and preferences. Embrace this change and unlock the door to a new chapter of comfort and happiness.
1. Can I transfer my tax base rate to any county in California?
Yes, with the implementation of Prop 19, you can transfer your tax base rate to a new property in any California county.
2. Do I need to meet specific criteria to qualify for the tax base rate transfer?
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3. Can I seek tax advice from my Realtor?
As a Realtor, I am not qualified to provide tax advice. It is crucial to consult with a Certified Public Accountant (CPA) or a tax professional for personalized guidance.
4. Are single floor homes more expensive than multi-level houses?
The cost of homes can vary based on location, size, and amenities. However, single-floor homes are available in a wide range of price points.
5. How can I start the process of moving to a single-floor home?
Begin by reaching out to a Realtor who specializes in the area you wish to relocate to. They can guide you through the process and help you find the perfect single-floor home for you.
I am caring for families with "Right Size" homes that fit their lifestyle. I ask lots of questions, and together with you, we get out there and find your home, then concentrate on the contract for you so the house fits your budget. I can make this process easy. Your Berkshire Hathaway HomeServices California Properties Real Estate Agent. San Diego Real Estate.
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Moving to a smaller house can have many financial advantages. Here's what you should consider from a tax perspective.
You may be at the stage in life where your kids are out of the house—or perhaps you're just looking for a change—and want to downsize your home. There's no question that downsizing can have many financial advantages. A smaller house can mean less upkeep, lower monthly expenses—and maybe even potential cash from a sale.
But before making a decision, it's important to assess how taxes could play a part. Will selling your home be worth it if it comes with a big tax bill?
Under current law, if you sell your principal residence for a profit, you may qualify to exclude up to $250,000 ($500,000 for married couples filing jointly) of that capital gain from your income tax. While many people may not profit enough to have to pay capital gains tax at all, those whose homes have appreciated considerably could face a significant bill.
First, the basics
In order to claim the maximum exclusion, you'll need to pass what the IRS calls the ownership and use tests. This means:
1. You must have owned the house for at least two years.
2. You must have lived in the house as your principal residence for two out of the last five years, ending on the date of sale.
There are exceptions to these rules—for example, moving before owning the home for two years due to a job change or experiencing what the IRS designates an "unforeseen circumstance," such as a divorce or natural disaster. In such cases, the IRS will allow you to prorate the exclusion. One thing to note: If you go through a divorce after having lived in the home for just one year, you would be entitled to only 50% of the exclusion.
Additionally, the two years of residency don't have to be consecutive as long as you've lived in your home for a total of 24 months out of the five years prior to the sale. You're also able to claim this exclusion on multiple sales, but you can only claim this exclusion once every two years.
Calculate your cost basis
To determine capital gains on the sale of your home, subtract your cost basis from the selling price.
But what exactly is your cost basis?
Your cost basis is not just the purchase price. It can include certain settlement fees, closing costs, and commissions associated with both the purchase and the sale—excluding escrow amounts related to taxes and insurance, etc. Add to this the cost of significant capital improvements (but not repairs) you made over time for renovations, additions, roofing, landscaping, and other upgrades. All these improvements will increase your cost basis and, therefore, lower your potential tax liability. Hopefully, you've kept good records because this can add up.
On the other side of the equation, there are a few things that can reduce your cost basis, increasing not just your profit but potentially your taxes as well. For example, if you received tax credits for energy-related improvements, you'll have to subtract those amounts from your cost basis. Also, if you ever claimed depreciation for a home office, you may have to "recapture" and pay tax on that amount.
Capital improvement or repair?
Tax rules let you add the cost of a capital improvement to your cost basis but not the cost of a repair. The difference? A capital improvement increases the value of your property. A repair simply restores your property to its original condition.
A new deck is a capital improvement. Fixing your plumbing is a repair. Sometimes, though, the distinction is less clear. For example, if you replace your entire roof, that's a capital improvement. But if you simply replace a few shingles, that's a repair.
A sample tax bill
Jon and Jane bought their home in 1988 for $250,000. Now in their mid-60s, they've decided to downsize. They sell their home for $875,000.
Over the years, Jon and Jane did a lot of remodeling and made many home improvements. Because Jane has a home office, they've claimed depreciation on their income tax return, which now has to be subtracted from the cost basis. They are in the 32% tax bracket and pay a 15% long-term capital gains tax rate. Here are the numbers.
What did they spend?
When Jon and Jane bought their home, they paid $12,500 in allowable settlement fees and closing costs at the time of purchase, and over the years, they spent $50,000 remodeling their kitchen and master bath, $20,000 on a new roof, and $15,000 on new landscaping—a total of $347,500. Because they had to recapture $50,000 of depreciation costs for Jane's office, the total cost basis of their home is $297,500.
What did they sell it for?
Jon and Jane sell their house for $875,000, but the $55,000 in commission and sales fees reduces their gross profit to $820,000.
How much did they make?
After subtracting their cost basis of $297,500 from their gross profit of $820,000, Jon and Jane will earn $522,500 in capital gains.
How much do they owe in capital gain taxes?
Because Jon and Jane are filing jointly, they can exclude the up to $500,000 of their capital gains, leaving them with a taxable gain of $22,500. Based on their income, their capital gains tax rate is 15%, resulting in a capital gains tax bill of $3,375.
Note: Jon and Jane must also "recapture" the $50,000 of home office depreciation deductions on their tax return as a "unrecaptured section 1250 gain." In this example it will be taxed at the maximum rate of 25% ($12,500 in tax). They would have to do this even if their capital gain was less than their $500,000 exclusion.
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