Tuesday, August 25, 2009

Getting Close to 55?

Let's say your birthday is in June, and you'd love to sell your long-held house and move to a wonderful, three-bedroom, two-bath 20th-floor condo on Lake Merritt. Or a great house within walking distance of Market Hall and the Rockridge BART. But, your PHS junior has one year left, and you'd rather not give up your incredibly low property tax bill. What to do?

A huge benefit of hitting 55 is that one can sell the house, trade down in Alameda County (or one of a half dozen other counties in the state offering reciprocity), and take the current low tax bill to the new abode.

So if your current property tax bill is $3,500, but the tax bill on that condo or sweet Rockridge bungalow would total $10,000, don't worry.

First, email for a brochure Dewey Watson and I developed on this issue. Then sell/buy or buy/sell your homes, file the essential paperwork with the county tax assessor, save $6,500 in taxes annually, and you've demonstrated your financial savvy.

Then, fill out the form at the school district office, and your junior can spend his/her final year commuting to PHS, under the ''senior privileges'' provision. Really.

Consult your financial advisor on all this, but read on for some extra points:

You can buy your replacement property before OR after you sell your original property, as long as the time gap is no more than two years. And there are inflation-adjustments. For instance, if you sold your original home last year, took a six-month trip around the world, and just purchased a replacement home for $1,000 more than your sale price, you're fine.

We're assuming that your home has appreciated bigtime--that means you've got capital gains bigtime. Note that the first $250,000 (single)/$500,000 (married) of your capital gain on the sale of your original home is excluded from tax.

If you have additional gains, and would really prefer to invest those gains rather than pay tax on them, consider renting your home for a period and then selling it. Then buy your replacement home, and purchase an investment property with any excess tax-deferred gains (through a Starker exchange). This is easy stuff to do. If the investment property were in a location that attracted you, you could decide in the future to make it your primary residence.

55 is looking better and better!

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