CAPITAL GAINS EXEMPTION
The following is an abbreviated guide for seniors. Vicki Stanton would be happy to send/bring you a complete guide free of charge. Call 714/809-5787, or click to email.
“Capital gains” are the profit made from the sale of a financial asset. The IRS provides a tax exemption on capital gains from the sale of the principal residence. For those who are married and filing jointly, and who meet all the necessary criteria, the sale tax exemption may be up to $500,000; for single persons, up to $250,000.
To claim the exclusion, one must have lived in the home as the main residence for two out of the past five years and not have claimed this exemption for another home for the past two years. The IRS may permit certain exceptions to these criteria called “unforeseen circumstances.”
Capital gains are based not on what was paid for the home, but on its adjusted cost basis. Home improvements that are not repairing or replacing something may be added to the cost of the home.
PROPOSITION 60 provides tax relief by preventing property reassessment when a senior citizen sells his or her existing residence and purchases or constructs a replacement residence worth the same or less than the original. The County Assessor uses the property’s base year valuation and transfers that factored base value of the original residence to the replacement residence. This may be done once during the senior’s lifetime.
PROPOSITION 90 widened the law to allow each California county to decide if it will accept a property’s base value from another county. Participation in Proposition 90 is not mandatory and is subject to change, so it is important to contact the county before a replacement property is purchased. Counties participating in Proposition 90 as of June, 2005 are Alameda, Los Angeles, Orange, San Diego, San Mateo, and Santa Clara.
PROPOSITION 110 further expands the law by granting reassessment exemption to those who become severely and permanently disabled after filing for transfer of base year value. Under Proposition 110, the disabled person may transfer his or her base year value a second time.
PROPOSITION 60 & 90 ELIGIBILITY
· The seller must be at least 55 at time of transfer. The spouse or co-owner does not to be over 55, but must reside in the residence.
· The replacement residence must be purchased or newly constructed within two years before or after the sale of the original residence.
· The replacement residence must be equal to or lesser in market value than the original residence.
· Proposition 60 and 90 tax exclusion is granted only once.
· Other eligibility requirements may apply. Contact the local County Tax Assessor’s office for more information.
Call Vicki Stanton 714/809-5787, or click to email for more information.
Information deemed reliable but not guaranteed and is subject to change. For filing forms and more information, contact your local County Assessor or the California State Franchise Tax Board at www.ftb.ca.gov or (800)868-4171