Avoiding Capital Gains Tax in Real Estate

LOS ALTOS — In California, selling a home or investment property can have a dramatic impact on your tax liability. That’s why, before moving ahead with your property sale, it’s prudent to consult with an accountant or financial planner. In addition to calculating what you might owe in capital gains, they can present options for minimizing your tax liability.

If you’re selling an investment property, one option to consider is a 1031 exchange. This tax loophole allows property owners to defer capital gains on their sale as long as the proceeds are used to purchase another property within a set time frame. If you choose to go this route, keep in mind that once you close escrow, you’ll be on the clock and have limited time to act.

If you’re selling your home and of qualifying age, consider taking advantage of the recently enacted Proposition 19, which allows homeowners aged 55+ to transfer the property tax assessment of their current home to their new one. Previously, you could only do this once and only in a few participating counties; now, you can do it up to three times and move anywhere in California. Even if you buy a more expensive home, you’ll only pay additional taxes on the difference in value between your prior home and your new one.