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WE are married couple over 65 years old. Our house is under

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my wife's name only. We...
WE are married couple over 65 years old. Our house is under my wife's name only. We made joint income tax returns in the past 4 years. If we sell the house, will we have the $500,000 gain tax free advantage? If after selling the house, we may buy a smaller house, the price of which is lower than that of the house we sold. Will we pay for the new smaller house the same amount as we are paying for the original house?
Submitted: 9 years ago.Category: Tax
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8/21/2008
Tax Professional: Lev, Tax Advisor replied 9 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,163
Experience: Taxes, Immigration, Labor Relations
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Let's separate your questions:

If you file joint tax return - as a married couple you may exclude from taxable income the gain up to $500,000 if you both satisfy two requirements:

- you owned the house for at least two years out of last five before the sale

- you used the house as a primary residence for at least two years out of last five before the sale

 

The fact that only your spouse is on the title is irrelevant.

If you and your spouse file a joint return for the year of sale, you can exclude gain if either spouse meets the ownership test - see IRS publication 523, Selling Your Home - http://www.irs.gov/pub/irs-pdf/p523.pdf page 15

 

The second part of your question - property taxes.

 

Property owners of at least 55 years of age may transfer the Proposition 13, factored base year value of their principal residence to a replacement principal residence. Here are some Q&A about property transfer taxation - http://www.boe.ca.gov/proptaxes/pdf/lta06010.pdf

 

So - in case the property taxes fo ra new house will be mor ethan for the old on e- you may use Proposition 13 provisions.
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Customer reply replied 9 years ago

Thanks for your answer. We need to make it clearer because very important. You said we may exclude from taxable income gain up to $500,000 if we "BOTH" satisfy the the 2 requirements. Actually only my wife's name is XXXXX XXXXX Title of the house, my name is XXXXX XXXXX there. Do we qualify to get the $500,000 gain without paying tax? The house has been our primary residence since 1997.

 

You said "The fact that only your spouse is on the title is irrelevant". I don't quite understand it. Could you explain it more clearly? Please quote the particular section in IRS Publication 523 that concerns our question.

 

For the second part of my question, please give me a clearer answer. We both are 65 years old. If we buy a smaller house at a price lower than the selling price of the existing house, do we keep paying the same amount of property tax as we are paying for the existing house? The existing house is in Alameda county (Fremont). We are planning to buy a smaller house in Santa Clara county (San Jose).

 

Propositon 13 you quoted we don't quite understand. Please quote the particular paragraph that concerns our question. Thanks very much for your help.

 

XXXXX XXXXX

Tax Professional: Lev, Tax Advisor replied 9 years ago

If you and your spouse file a joint return for the year of sale, you can exclude gain if either spouse meets the ownership test - see IRS publication 523, Selling Your Home - http://www.irs.gov/pub/irs-pdf/p523.pdf page 15

 

So if one spouse owned the house at least two years and you are filing joint return another spouse for purpose of $500,000 gain exclusion is considered as satisfied the test. Each spouse still need to life in the house at least two years.

 

The property that you will purchase will have some property tax attached based on its value - that is a taxes you generally should pay.

But as you are above 55 and own the house - you may transfer your current property tax amount to new property.

If your current property tax bill is less than a new bill will be - you may take advantage of proposition 13.

If a new bill will be less than your current property tax liability - you should pay a new bill and the proposition 13 would not apply.

Proposition 13 applies if an old and a new property are in the same country. As you will move to different county - the proposition 90 might apply if Santa Clara county board adopted it allowing transfers from other counties.

Both Alameda and Santa Clara are currently participating counties in this program. - http://www.sccgov.org/portal/site/asr/agencyarticle?path=%252Fv7%252FAssessor%252C%2520Office%2520of%2520the%2520%2528ELO%2529&contentId=0f70bb3166b34010VgnVCMP2200049dc4a92____

 

Santa Clara county office of the Assessor - http://www.sccgov.org/portal/site/asr/

Form to use - http://www.sccgov.org/SCC/docs/Assessor,%20Office%20of%20the%20(ELO)/attachments/500450BOE60AHcurrent.pdf

 

Contacts - Assessor Real Property - General Questions, Property valuations and Propositions 3, 8, 60, 90
70 West Hedding St., East Wing
5th Floor
San Jose, CA 95110

Phone:(NNN) NNN-NNNNbr />Fax:(NNN) NNN-NNNN/p>

 

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Customer reply replied 9 years ago

Dear Sir:

 

Thanks again for your efforts of replying our questiom. However, we still do not think the answer satisfy us. Can you simply answer the questions as "YES" or "NO"?

 

1. Both my wife and I are 65 years old. Her name is XXXXX XXXXX title only. We made joint tax return for the past 4 years. My wife has 100% been living in the house for the past 10 years. I live in the house 50% for I have business in San Jose. Do you think my wife is quolified to get $500,000 gain without tax if she sells the house? YES or NO?

 

2. The market value of the existing house is $800,000 (Fremont of Alameda county). A house she plans to buy will be at the value around $600,000 (San Jose of Santa Clara county). The exsiting property tax she pays is around $4,000 yearly. Will she pay the same amount or less property tax for the new house she will buy?

 

As my English is not very good, so I would like you to answer my questions in a most explicit way. I will appreciate it.

 

XXXXX XXXXX

Tax Professional: Lev, Tax Advisor replied 9 years ago

1. Both my wife and I are 65 years old. Her name is XXXXX XXXXX title only. We made joint tax return for the past 4 years. My wife has 100% been living in the house for the past 10 years. I live in the house 50% for I have business in San Jose. Do you think my wife is qualified to get $500,000 gain without tax if she sells the house? YES or NO?

 

Answer - Yes

 

2. The market value of the existing house is $800,000 (Fremont of Alameda county). A house she plans to buy will be at the value around $600,000 (San Jose of Santa Clara county). The existing property tax she pays is around $4,000 yearly. Will she pay the same amount or less property tax for the new house she will buy?

 

Answer - Yes.

You will pay property tax based on new house assessment. Assessment will be done after the purchase.

But is if your new tax amount will be higher that $4,000 you may apply for prop 90 adjustment and your taxes will be reduced to $4000.

So your property taxes will be $4000 or less.

Lev
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Tax Professional: Lev, Tax Advisor replied 9 years ago
Small note - you wrote that you lived in the house 50% - I assumed that the house is your primary residence - and when you travel to San Jose - you have a temporary residence there - the fact that you travel to the temporary place doesn't change your primary residence.
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