What You Need To Know About Property Taxes Before Listing Your Property

I’ll go over key facts about property tax transfers and capital gains exclusions and how they can help ease your tax burden.

Are you planning to sell your Orange County home but worried about real estate taxes? I know you probably don’t want to hear the evil T word one more time–taxes. Particularly, two major tax conversations come up often: property taxes and capital gains.

With many Orange County owners stuck in their homes because of these two, I’ll go over how property taxes and capital gains work and how to deal with them. Let’s break them down.

1. Property taxes and Proposition 19. Many longtime homeowners in Orange County bought their homes decades ago at low prices and now enjoy a low property tax rate. As they think about downsizing—say, from a two-story to a single-story home—they worry that moving will trigger a big jump in property taxes.

That’s a valid concern, but Proposition 19 offers some relief. If you’re over 55, this law lets you transfer your current property tax base to a new home. Here’s how it works:

• If your new home costs the same or less than the one you sell, your tax rate stays the same.

• If it costs more, you’ll keep your current rate on the original home’s value and only pay a new rate on the price difference. For instance, when you sell for $2 million and buy for $2.5 million, you’re taxed at your original $2 million rate. The extra $500,000 is taxed at the new rate.

You can use this benefit up to three times.

“Real estate appreciation is great news, but it also means the government will be expecting its share.”

2. Capital gains. The second common concern is capital gains tax, especially given how much property values have increased over the past decade. Real estate appreciation is great news, but it also means the government will be expecting its share.

As it stands now, if your home is your primary residence, you may qualify for a capital gains tax exemption—$250,000 if you're single, or $500,000 if you're married. This means you can profit up to that amount from the sale without paying taxes.

There’s been discussion about raising these limits to $500,000 and $1 million, but for now, those changes haven’t passed and the current exemptions still apply.

If you're selling an investment property, capital gains taxes are also a concern. In that case, a 1031 exchange can help. This strategy lets you defer taxes by reinvesting the proceeds into another investment property. There are also creative ways to use a 1031 exchange if you’re ready to step away from being a landlord, which I’ll cover in another video.

If you find this information helpful, feel free to reach out. Don’t hesitate to call me at (949) 835-4713 or send an email to simon@sellwiththerightguy.com. I’d be happy to help however I can.