If retirement is on the horizon and you own your home in Los Angeles, this could very well be the best time to sell, downsize, and make the best out of retirement. Property values are at an all-time high, and downsizing—getting a less expensive home—can be a great way to upsize your lifestyle.
A less expensive home typically means lower mortgage payments and more money in the bank. This can mean more vacation days, better medical attention, and doing more of the stuff you always wanted to do.
To make downsizing your home even more worthwhile, two huge tax benefits are available: Internal Revenue Code Section 121 and Propositions 60 & 90.
If you qualify under IRC Sec. 121, you could be exempt from paying capital gains tax on the sale of your house on a gain of as much as $500k. In some circumstances, depending on the seller’s financial and marital situation, this can mean a tax savings of over $100k. That’s $100k more for retirement or to invest in your downsize property.
The tax savings of Section 121 make downsizing one of the most profitable after-tax retirement strategies available to homeowners.
For those that are 55 years or older, there is Proposition 60 & 90. Together, if you qualify, these two propositions allow you to transfer the property tax base from your current house to your new purchase. This is a big deal, especially for people who have owned their house for a long time, as they typically pay less in property taxes than new buyers, due to the current property tax system in California. The transfer can be within Los Angeles County or cooperating counties, which include Riverside and San Diego Counties, among others.
So, again, if retirement is on the horizon and you own your home in Los Angeles, this may well be the best time to downsize and get the most out of your retirement.
Big Fat Disclaimer: I am not a certified public accountant, nor am I certified or qualified to give tax advice. This is a summary of tax benefits that definitely need to be discussed with the appropriate professional.
SUBSCRIBE BELOW FOR MORE COOL REAL ESTATE ARTICLES.
ABOUT THE WRITER
Daniel is a real estate agent, specializing in residential and residential income properties. He'd love to help you.