Dar-Mardan-Realtor-CPA
New member
California homeowners have a unique opportunity to sell their main home and transfer their property tax assessment to a new one. Proposition 19 allows eligible individuals aged 55 or older, disabled, or those who lost their home in a natural disaster to move their tax basis up to three times anywhere in California. This blog will explore the essential aspects of Proposition 19, including the criteria for qualification, calculating the new tax basis, and addressing complex scenarios such as "gray divorce."
Example 1: A Simplified ScenarioLet's consider a simple example of a homeowner aged 55 or older who sells a home with a tax basis of $250,000 for $2 million. The homeowner decides to buy a new home for $1.8 million. In this scenario, the tax basis of the new home is $250,000. By meeting the other rules, this homeowner can transfer their tax basis to the new home, even though the new home costs less than the one sold. This allows them to continue paying property taxes based on the $250,000 tax basis, regardless of the new home's market value.
Example 2: Calculating the New Tax BasisThe process of calculating the new tax basis involves a simple formula: value of the new home - value of the old home + old tax basis = new tax basis. For instance, if someone sells their house for $1.7 million and buys a new home worth $2 million, this is how they calculate the new tax basis:
$2.0 million - $1.7 million = $0.3 million + $1.0 million (old tax basis) = $1.3 million (new tax basis)
Example 3: Complex Scenario - Gray DivorceIn the case of a "gray divorce," where both husband and wife are over the age of 55 and decide to sell their marital home, complexities arise. The couple may wish to split the profits and proceeds from the sale and purchase new homes. However, Proposition 19 only allows one spouse to transfer their tax basis from the old home to the new one. The guidelines recommend that the transfer of property tax basis should be based on a mutual agreement, but the tax authorities usually do not verify this agreement. Essentially, the first person to transfer the property tax basis to a new property can take advantage of this rule.
Proposition 19 offers significant tax benefits for California homeowners who meet the eligibility criteria. By understanding the rules and calculations, you can make informed decisions when selling and buying a new home, maximizing your tax savings and retaining favorable property tax rates. However, tax laws can be complex and subject to change, so it's essential to seek advice from a professional and stay updated on the latest regulations. Whether in simple scenarios or complicated situations like "gray divorce," staying informed will help you make the most of Proposition 19's opportunities and financial advantages.
About the Author
Dar Mardan, a seasoned realtor at Pacific Sotheby's International Realty, is your guide to all things real estate in sunny Orange County. With an emphasis on informed decisions and an array of knowledge spanning real estate, tax strategies, trusts, and more, Dar turns learning into an adventure. Alongside his talented wife, Vida, they offer a comprehensive, personalized approach to serve clients' real estate needs. Trust Dar and Vida to turn your real estate dreams into an extraordinary reality!
Example 1: A Simplified ScenarioLet's consider a simple example of a homeowner aged 55 or older who sells a home with a tax basis of $250,000 for $2 million. The homeowner decides to buy a new home for $1.8 million. In this scenario, the tax basis of the new home is $250,000. By meeting the other rules, this homeowner can transfer their tax basis to the new home, even though the new home costs less than the one sold. This allows them to continue paying property taxes based on the $250,000 tax basis, regardless of the new home's market value.
Example 2: Calculating the New Tax BasisThe process of calculating the new tax basis involves a simple formula: value of the new home - value of the old home + old tax basis = new tax basis. For instance, if someone sells their house for $1.7 million and buys a new home worth $2 million, this is how they calculate the new tax basis:
$2.0 million - $1.7 million = $0.3 million + $1.0 million (old tax basis) = $1.3 million (new tax basis)
Example 3: Complex Scenario - Gray DivorceIn the case of a "gray divorce," where both husband and wife are over the age of 55 and decide to sell their marital home, complexities arise. The couple may wish to split the profits and proceeds from the sale and purchase new homes. However, Proposition 19 only allows one spouse to transfer their tax basis from the old home to the new one. The guidelines recommend that the transfer of property tax basis should be based on a mutual agreement, but the tax authorities usually do not verify this agreement. Essentially, the first person to transfer the property tax basis to a new property can take advantage of this rule.
Proposition 19 offers significant tax benefits for California homeowners who meet the eligibility criteria. By understanding the rules and calculations, you can make informed decisions when selling and buying a new home, maximizing your tax savings and retaining favorable property tax rates. However, tax laws can be complex and subject to change, so it's essential to seek advice from a professional and stay updated on the latest regulations. Whether in simple scenarios or complicated situations like "gray divorce," staying informed will help you make the most of Proposition 19's opportunities and financial advantages.
About the Author
Dar Mardan, a seasoned realtor at Pacific Sotheby's International Realty, is your guide to all things real estate in sunny Orange County. With an emphasis on informed decisions and an array of knowledge spanning real estate, tax strategies, trusts, and more, Dar turns learning into an adventure. Alongside his talented wife, Vida, they offer a comprehensive, personalized approach to serve clients' real estate needs. Trust Dar and Vida to turn your real estate dreams into an extraordinary reality!
Last edited: