Capital Gains Taxes rules and exemptions for low income in CA

[24bLackBirdz]

Hi. I own 2 homes in California, one as my primary residence and one as a rental (income source). I'm just now changing residences, prompted in part because I saw that in order to sell a home and not be charged Capital Gains taxes, I'd need to live there and have it as my primary residence for 2 years before I could sell it and buy a different property and not be hit with a big tax.

I recently read that I would not be hit with a Capital Gains tax, even if I didn't live in the house as my primary residence for 2 years, so long as my income is below a certain level and I don't sell the house for more than $300k than I paid for it. Is this true? If so, what is the income level I would need to be below? Would I need to buy a different house within a year with the money from that sale? Does it have to be a house or could I buy property (instead of a house). Are there any other rules that would apply?

Thank you,
Curious in California

[Cindy4]

Hi @24bLackBirdz !

CA conforms to the IRS rules for home sales for recognizing any capital gain.  Currently the exclusion amount is $250,000 if filing as single, and $500,00 if filing married jointly.  The capital gain is any amount you receive over the amount that is your basis in the property.  Your basis is calculated by the amount you paid for it minus any depreciation you've claimed, plus various items that can increase basis.  This can include improvements, certain settlement charges and fees when both buying and selling, and other items.  Here is some guidance on calculating your home's basis:

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...

If you buy another business property to replace a business property you could qualify for a like kind exchange and defer tax.  The rules are very strict and can be found here:

https://www.irs.gov/pub/irs-news/fs-08-18.pdf

Hope this helps!

Cindy