Home Selling in Cupertino>Question Details

wendycy2k, Both Buyer and Seller in Cupertino, CA

How to avoid capital gain from selling the primary residence?

Asked by wendycy2k, Cupertino, CA Thu Jan 3, 2013

The house is appreciated more than the gain tax exemption, is there anyway to avoid capital gain for the amount over 500k?

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11
While you cannot escape the capital gain tax if it is truly owed, you may be able to cushion the effect by careful planning and by offsets in other areas. You should consult a tax advisor.

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.
1 vote Thank Flag Link Fri Jan 4, 2013
Great answer by Terri below! Only thing I might add is to check the assumption that you've maintained go records of your "basis". For example, if you added a bedroom and bathroom, and let's say it cost $75,000 and kept good records of that you may be able to use that to increase the baseline for your home's basis. So if the sale of your home is going to net you a $575k gain, so $75k looks like it will be taxed, and if you discovered the scenario I am describing it might reduce the gain by $75k and there by put you right at $500k.... so no tax for gains!!!

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

Stu
408-209-0849
Stu@StuCarson.com
http://www.JustMyProperties.com
1 vote Thank Flag Link Fri Jan 4, 2013
Let's assume there is a $1.5 Mill in Potential Gain ... Hence, after $500k Exemption, you are left with $1m in potential Taxable Gain.

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???
0 votes Thank Flag Link Tue Apr 22, 2014
To maximize the gain, how about adding an adult child to be co-owner (500k ->750K cap) providing the child own/live in the same house for two years. Then sell the house; buy another house with pro 60/90 to transfer low tax base.
The drawback is using up some gift tax exemption, the child needs to agree to sell etc.
0 votes Thank Flag Link Fri Jan 4, 2013
There aren't any simple ways to avoid capital gains over $500k on your priciple residence.

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

Juliana Lee
Cell: 650-857-1000
Top 3 agent nationwide at Keller Williams Realty

Over 20 years experience
Over 1000 home sales completed in Santa Clara and San Mateo counties
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Web Reference: http://julianalee.com
0 votes Thank Flag Link Fri Jan 4, 2013
Sell it cheaper... On a more serious note - talk to a tax professional. There may be ways of reducing or deferring the capital gains.
Web Reference: http://talisrealestate.com
0 votes Thank Flag Link Fri Jan 4, 2013
There are many options, especially if you have a family and want to divert funds through a trust. You are going to need to talk to an accountant – as Realtors, we can’t provide accounting or taxation advice.
0 votes Thank Flag Link Fri Jan 4, 2013
.This is a tax question and should be posed to your trusted tax professional. New laws are going to affect the percentage of tax gain.

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!
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Fri Jan 4, 2013
It is best to talk to a tax professional. In addition to the taxes on the gain over the $500k exemption there is a new tax (Affordable Healthcare Act) for gains over a certain thresehold. With the gains you mentioned you may owe this additional tax.
Good luck,
0 votes Thank Flag Link Fri Jan 4, 2013
You can't avoid taxes, but you can most certainly postpone them ... sometimes indefinitely :-)

It's called a 1031 exchange. I would be happy to tell you more about it if you'd like.

-Igor
0 votes Thank Flag Link Fri Jan 4, 2013
You should consult with a CPA about this. From what I know, you should just take the $500K exemption and run, before the Congress decides to take that away. For the amount over that figure, you can use other capital losses to off-set it, but there's no way to avoid tax, at least not legally.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Fri Jan 4, 2013
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