Real Estate Market

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For Sale: $339,900

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Market Trends for Ventura County

When Probate is Required

Today we interview Maria Capritto, local estate planning attorney, of Nelson Comis Kettle & Kenny, LLP to discuss why Probate maybe required to sell a property. We will take a look at the do’s and don'ts for those who are appointed as the executor or administrator of the estate. What the typical timeline looks like for a Probate sale.

PROP 5 - Property Tax Transfer Initiative on the November 2018 Ballot!

Why is this Needed?

Under Proposition 13, homeowners are protected from rapidly increasing property taxes. However, seniors, who are often on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this “moving penalty,” almost three-quarters of homeowners 55 and older haven’t moved since 2000. The initiative will allow them to sell their home while keeping some property tax protections, and therefore create homeownership opportunities for young families.

How do property tax assessments work now?

Unfortunately, homeowners lose their Proposition 13 property tax savings when they move to another home. Under another law, Proposition 60, senior homeowners – defined as 55 years of age

or older—are allowed to transfer their property tax base to another home in the same county so long as the purchase price of the replacement home is equal to, or less than, the sale price of the original residence.

Under Proposition 60, a senior homeowner is limited to making only one such transfer over the course of his or her lifetime. And, if the spouse of a senior homeowner has already transferred a property tax base, that senior homeowner is disqualified from making another transfer of the tax base.

Proposition 90 is an extension of the original Proposition 60 program. Proposition 90 allows senior homeowners to transfer their property tax base to a home in a different county so long as that county accepts such transfers. (At last count, only 11 counties are accepting transfers from other counties.)

Propositions 60 and 90 are relatively limited. That’s where C.A.R.’s property tax base portability initiative comes in.

How will the initiative work?

C.A.R.’s Portability Initiative would allow homeowners 55 years of age or older to transfer some of their Proposition 13 property tax base to a home of any price, located anywhere in the state, any number of times.

What’s next?

Prop 5 will now appear on the November 2018 ballot to decide it’s fate.

How to Use Personal Residence Tax break and 1031 exchange for Super Tax Break

Did you know that you can avoid paying tax on more than $500,000 of gain on your home? Many people are aware of the advantages of Internal Revenue Code Section 121, which allows a married couple to exclude up to $500,000 of gain on the sale of their personal residence ($250,000 for a single taxpayer). Although this amount of gain is generous in most areas of the country, in some states homeowners receive more than $500,000 of profit when they sell their home.  That additional profit is subject to federal and state capital gains tax and net investment income tax (Medicare tax).
What is much less understood in the real estate world is that a homeowner can avoid paying all of the tax on their home by converting it to a rental. Once the home is converted to a rental, the owners can sell it and use both the Section 121 exclusion of gain and the Section 1031 deferral of gain provisions to exclude some of the gain and defer paying tax on the rest.  Most tax advisors recommend renting the home for at least two years to establish it as a rental, but if you rent it for too long, you could lose the ability to benefit from the Section 121 exclusion, since that provision requires that you have lived in the home as your primary residence at least two of the past five years.
For example:
John and Mary Smith have lived in their home for twenty years. They acquired it for $100,000 and it is now worth $1 million, so if sold, they would have $900,000 of gain. If they sell it without converting it to a rental, they would be able to exclude $500,000 of gain but would have to pay capital gains tax on the additional $400,000 of gain.
John and Mary decide, however, to convert their property to a rental. After renting it for two years, they sell it for $1 million. Since they used the home as their primary residence at least two of the past five years, they are able to exclude $500,000 of the gain. They can then use the remaining funds to acquire replacement investment property in a 1031 exchange and defer paying tax on the balance of the gain.  In order to accomplish this, they must set up the 1031 exchange prior to closing on the sale of the property.
In order to completely defer the remaining gain, the traditional rule is that the investor must acquire replacement property with a fair market value equal to or greater than the relinquished property, and must invest all of the equity from the relinquished property into the replacement property. When gain has been excluded under Section 121, however, the amount of value and equity required to invest in the replacement property is reduced by the amount of gain that was excluded under Section 121.
Homeowners who decide to combine a sale of their primary residence with a 1031 exchange need to comply with all of the rules of Sections 121 and 1031 in order for this to work. Revenue Procedure 2005-14 explains how the two statutes may be combined for one property. This ruling includes not only the situation mentioned above, but also a sale of a personal residence with a home office or separate guest house that is rented.
Some of the requirements to keep in mind are:
  • To take advantage of the $500,000 exclusion ($250,000 for single Taxpayers), you must own and live in your home as your primary residence at least two of the past five years;
  • You can only take advantage of the Section 121 exclusion once every two years;
  • Section 121 doesn't allow you to exclude any gain attributable to depreciation deductions taken since May 6, 1997, but that gain can be deferred under Section 1031; and
  • To take advantage of the deferral of gain under Section 1031, the property you sell and the property you acquire must at the time of the exchange be used in connection with your business or held for investment.

Contact Information

Photo of Harold Powell Real Estate
Harold Powell
RE/MAX Gold Coast Realtors
5720 Ralston St. Ste. 100
Ventura CA 93003
(805) 339-3516