Capital Gains & Property Taxes
on the Sale of Your Principal Residence

The California Association of Realtors provides the following information. Please consult a qualified tax accountant prior to making any real estate decision based on this information. The following information is believed to be accurate, but is not guaranteed.

Capital Gains Tax In August 1997, President Clinton signed historic federal capital gains tax cut legislation that lowered overall capital gains rates and allows couples to exclude from taxes up to $500,000 of their capital gains on the sale of a principal residence. Largely due to efforts by C.A.R., California lawmakers also recently enacted a state capital gains tax exclusion. On October 10, 2000 the IRS released proposed regulations for the exclusion of capital gain on home sales. The Taxpayer Relief Act of 1997 provided that a taxpayer can exclude up to $250,000 of gain ($500,000 for qualifying married couples who file jointly) on the sale of a principle residence. This exclusion is conditioned upon the seller(s) having owned and occupied the home for 2 out of the last 5 years ending on the date of sale. At first reading, these new proposed regulations do not contain any surprises and in fact, appear to liberally interpret the statute. In releasing these regulations, the IRS has asked for assistance in determining what should qualify as "unforeseen circumstances." Generally, a seller is required to own and use a principle residence for an aggregate of 2 out of the last 5 years, ending on the date of sale. Nevertheless, a pro-rata exclusion is allowed if the taxpayer sells the house (without meeting the 2-year requirements) as result of a "change in place of employment, health, or "unforeseen circumstances." NAR will work to help the IRS define "unforeseen circumstances" that qualify for this partial exclusion. Proposition 13 Proposition 13, approved by voters in 1978 implemented many changes in the state's tax laws: Capped property taxes at 1% of assessed value Rolled back assessed values to 1975 levels. Allowed for a 2% annual increase in assessed values to compensate for inflation. Required two-thirds voter approval of all local "special taxes". Proposition 60 Allows a home buyer age 55 years or older to transfer his/her property tax base from the old primary residence to a new one within the same county. In most cases the new home must be of lesser value. The propostion 13 assessed valuation from the old home is applied to the new property. This is allowed once in your lifetime, and a spouse who has done it before 'taints' both spouses. Proposition 90 Proposition 90 provides the same benifit as Proposition 60 when a home buyer has sold his/her primary residence in one county and is buying a new one in another county. Proposition 90 is a "local-option" law; each county has the option of participating. If a county has adopted a Proposition 90 ordinance, it accepts transfers of property tax base assessments from other California counties. If the county that the homeowner is moving from does not have a Proposition 90 ordinance, this does not affect the eligibility of the homeowner. The following counties accept proposition 90 (current as of June 1, 2005):

Alameda	510-272-3755
Los Angeles	213-974-3101
Orange	714-834-2727
Santa Clara	408-299-5318
San Diego	619-531-5507
San Mateo	650-363-4500
Ventura	805-654-2181

This information is believed to be accurate, but is not guaranteed.

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