It looks like your may be generating a lot of cash with your sale. You may also be well served to consult with a financial and estate planning expert. If your sale is part of a strategy for down-sizing, you may be able to accomplish your goals in other ways.
Another question that comes to mind is are you considering Prop 60 and 90 to avoid seeing the sale of this home and purchase of a replacement home from increasing your property taxes??? See this article for more information, as that might be as or more financially important than the capital gains question you are asking http://getrealrealtor.com/265609
My suggestion is to use $5m Estate Tax Gift exemption & Gift $1m in Gift to your child/children (If the House is appraised at $3mill, that would be 30% of the House as a Gift to your child/children)
Now that the parents own only $2m worth of the house, their capital Gain will be only $500k.
Is this not workable, CPAs???
The drawback is using up some gift tax exemption, the child needs to agree to sell etc.
If you rent out your home you can potentially do a 1031 exchange which basically transfers your tax basis to the new rental property delaying when the gain will be recognized.
A charitable remainder trust can provide cash but would most likely reduce how much money you leave to your heirs. You would need to talk to a tax consultant to work out the details which are quite important. Depending on your goals and financial situation this can be a good solution.
Be sure to see if you can transfer your property tax basis to your new home. Property tax information posted at: http://julianalee.com/reinfo/property-taxes.htm
Top 3 agent nationwide at Keller Williams Realty
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Over 1000 home sales completed in Santa Clara and San Mateo counties
There are some options for certain individuals.
1031 Tax exchange if the property was converted into a rental held for a certain period of time then purchase part or all in an investment property.
Certain Transfers within family.
If you don't sell it shouldn't affect you.
To name a few items to discuss with your tax person to see if you qualify, how much if any it affects you and other options available to you.
Have an amazing day!
It's called a 1031 exchange. I would be happy to tell you more about it if you'd like.