Prop 60/90 for Seniors
Question: I am a widowed senior and am nervous about selling my home and moving into a smaller home that will still mean I will pay more property tax than I did in my big home. And will I have to pay capital gains on the sale of my home? I only paid $120,000 and now it is worth about $900,000.
Answer: It is not uncommon for seniors to be concerned about both the items you mentioned as they consider selling their home. I am sure you are tired of the upkeep of a home that is now too large for you. I imagine your children are living elsewhere and you are alone in a space that no longer makes sense. So, first let’s discuss the property tax ramification of a move. Based on what you said, “Moving from the big home to a smaller home” that will likely mean that you will sell your home for much more than the new purchase. If you are staying in Orange County after the move you can take your tax base with you if your purchase is no more than 105% of the value of the property you sold.
For example, if you sold your home for $900,000, then you could buy a home for up to $945,000 and still transfer your tax base. So in that case your property tax would not increase due to the purchase. You can only do that once and it must meet the criteria. Look up prop 60 and prop 90 (depends on whether you are staying in Orange County or moving to another county that may accept the transfer. Therefore, it is possible to move and not have a higher property tax. Must be a senior to qualify so those of you who are under the age of 55 this does not apply to you, yet. Now what about the capital gain from the sale of your home? First, I will give you some guidelines but will tell you that this is why you have an accountant/CPA. In general, when your husband passed away, assuming you held the property in Joint Tenancy, you can increase his half of the value of the property at the time of his passing and add that to your original half of the value. You said you bought it for
$120,000 and it is now worth $900,000. If $900,000 was the value at the time of his death, then your new value for tax purposes would be $60,000 (your half) plus $450,000 (his half at time of death) for a new value of $510,000. If you have done improvements over the years that will also affect the value of the property and that can be added to the original value over the years. Maybe you spent $180,000 doing improvements such as additions, a new pool, roof, kitchen remodel, etc., all prior to your husband’s death. You can add that to the value so you are now at $510,000 plus $90,000 (half the value of the improvements) for a value of $600,000. Now you sell the property for $900,000 less the expenses of selling and net $850,000. You also get an exclusion for tax purposes on the sale of $250,000 (for a single person). If all that were true you would have no capital gain (New basis value of $600,000, net sales proceeds of $850,000 means a gain of $250,000 but you have an
exclusion of $250,000 to offset the gain. Check with your accountant for your specific circumstances. Sounds pretty good doesn’t it? Better start packing.