Capital Gains Tax on the Sale of Your Principal Residence
The California Association of Realtors provides the following information. Please consult a qualified tax accountant prior to making any real estate decision based on this information. The following information is believed to be accurate, but is not guaranteed.
| Capital Gains Tax
In August 1997, President Clinton signed historic federal capital gains tax cut legislation that lowered overall capital gains rates and allows couples to exclude from taxes up to $500,000 of their capital gains on the sale of a principal residence. Largely due to efforts by C.A.R., California lawmakers also recently enacted a state capital gains tax exclusion.
On October 10, 2000 the IRS released proposed regulations for the exclusion of capital gain on home sales. The Taxpayer Relief Act of 1997 provided that a taxpayer can exclude up to $250,000 of gain ($500,000 for qualifying married couples who file jointly) on the sale of a principle residence. This exclusion is conditioned upon the seller(s) having owned and occupied the home for 2 out of the last 5 years ending on the date of sale. At first reading, these new proposed regulations do not contain any surprises and in fact, appear to liberally interpret the statute. In releasing these regulations, the IRS has asked for assistance in determining what should qualify as "unforeseen circumstances." Generally, a seller is required to own and use a principle residence for an aggregate of 2 out of the last 5 years, ending on the date of sale. Nevertheless, a pro-rata exclusion is allowed if the taxpayer sells the house (without meeting the 2-year requirements) as result of a "change in place of employment, health, or "unforeseen circumstances." NAR will work to help the IRS define "unforeseen circumstances" that qualify for this partial exclusion.
Proposition 13
Proposition 13, approved by voters in 1978 implemented many changes in the state's tax laws:
- Capped property taxes at 1% of assessed value
- Rolled back assessed values to 1975 levels.
- Allowed for a 2% annual increase in assessed values to compensate for inflation.
- Required two-thirds voter approval of all local "special taxes".
Proposition 90
C.A.R. works closely with REALTORS® at the local level who lobby their county supervisors for Proposition 90, a local-option law which gives seniors a break on their property taxes when they move into a new home.
Ordinarily under Proposition 13, the value of a home for property tax purposes is re-assessed to market level whenever a change in ownership takes place. This usually results in higher property taxes for the homebuyer. In November 1988, the state's voters approved Proposition 90, which is designed to induce greater turnover of homes owned by senior citizens. The measure provides anyone over the age of 55 with relief from Proposition 13 by allowing them to move from one county to another without undergoing a change in their basic property taxes. Proposition 90 is a "local-option" law; each county has the option of participating. If a county has adopted a Proposition 90 ordinance, it accepts transfers of property tax base assessments from other California counties. If the county that the homeowner is moving from does not have a Proposition 90 ordinance, this does not affect the eligibility of the homeowner.
[Please note: Proposition 60 is a similar law passed by the state's voters two years prior to Proposition 90. It allows seniors to keep their property tax base assessment when they move within the same county.]
Both Santa Clara and San Mateo counties that have adopted a Proposition 90 ordinance. Table I below lists the counties that have adopted a Proposition 90 ordinance. Table II lists the counties that have rejected Proposition 90. |
TABLE I - counties which have adopted a Proposition 90 ordinance
| Alameda
| Modoc
| Santa Clara
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| Kern
| Monterey
| San Diego
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| Los Angeles
| Orange
| San Mateo
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| Ventura
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This information is believed to be accurate, but is not guaranteed. |
TABLE II - counties which have rejected implementing Proposition 90
| Butte
| Merced
| Santa Barbara
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| Calaveras
| Mono
| Santa Cruz
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| Contra Costa
| Napa
| Shasta
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| El Dorado
| Nevada
| Siskiyou
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| Fresno
| Placer
| Solano
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| Inyo
| Riverside
| Sonoma
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| Lake
| Sacramento
| Stanislaus
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| Madera
| San Benito
| Trinity
|
| Marin
| San Bernardino
| Tulare
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| Mendocino
| San Luis Obispo
| Yolo
|
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This information is believed to be accurate, but is not guaranteed. |
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