Navigating taxes when selling your home in Sammamish, Wash., and moving to Orange County, Calif., involves considerations at both the federal and state levels, particularly given your status as seniors and the significant appreciation in your home’s value since its purchase in 1996.
Federal Capital Gains Tax
- Cost Basis Calculation: Your original purchase price of $230,000, plus $120,000 in improvements, totals a cost basis of $350,000.
- Potential Capital Gains: Assuming a sale price of $1.4 million, your profit would be $1.05 million ($1.4 million – $350,000).
- Exclusion for Married Couples: As a married couple over 65, you can exclude up to $500,000 in capital gains from taxes. Therefore, you would owe capital gains tax on the remaining $550,000 ($1.05 million – $500,000).
- Tax Rate: The capital gains tax rate could be 0%, 15%, or 20%, depending on your income bracket. For married couples filing jointly, the 15% rate applies to taxable income between $94,051 and $583,750 in 2024.
- Estimated Tax Liability: Based on the $550,000 taxable gain, assuming a 15% capital gains tax rate, you might owe approximately $82,500 in federal taxes ($550,000 * 0.15).
State Taxes
- Washington State: There is no state income tax in Washington, but you’ll pay real estate excise taxes (REET) on the sale.
- California State: Your home sale proceeds from Washington are not subject to California income tax, provided you establish California residency after the sale.
Local Tax Considerations
- Property Tax Programs: Orange County offers property tax relief programs for seniors, disabled individuals, and others with special circumstances. These programs defer property tax payments but create a lien on the property.
Other Tax Breaks for Seniors in California
- Income Taxes: California does have income taxes, but Social Security income is not taxed. There are also specific tax credits for seniors, such as the Senior Head of Household Credit, depending on income and circumstances.
Strategic Considerations
- Timing: Ensure you establish California residency after selling your Washington home to avoid California state taxes on the sale proceeds.
- Consultation: Given the complexity of tax laws and the significant financial implications, consulting with a tax advisor specializing in interstate moves and senior tax issues would be prudent. They can provide personalized advice on maximizing tax benefits and navigating the process smoothly.
By carefully planning and understanding these tax implications, you can make informed decisions that optimize your financial position as you transition to a new home closer to family in Orange County, Calif.
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