Active Adults

Check Out All The Possibilities

When it comes to real estate (your primary residence, second home, income property, land, etc.) you will want to talk to your financial advisors (CPA, Tax Attorney, Estate Planner, etc.) before making any decisions about changes in ownership of your existing property or purchase of new property(ies).

You may be thinking about selling your present home and buying a less expensive/smaller home.  The current residence may just be too big for your present lifestyle and require too much upkeep.  Make sure you verify with your financial advisor(s) how to take advantage of the Taxpayer Relief Act.  This allows single taxpayers to exclude up to $250,000 and married couples up to $500,000 in gains as long as you have lived in the house for two out of five years before the sale.

Your financial advisors can explain to you how the tax laws do not require you to buy another house within a certain time period in order to get the capital gains tax break.  Because of this, you may want to rent – at least for a while.  This may give you more free time to travel, not worry about repairs (that’s the landlord’s job), perhaps take some of the money from your home sale and use it for other areas of your investment portfolio.

Maybe you think that the property tax and/or mortgage interest deduction(s) on your present home make a difference in your financial ‘bottom line’.  Again, talk to your financial advisor to see if your tax bracket is lower at the time of your retirement and if you take into consideration all of the additional costs of owning a home (maintenance, insurance, repairs, property taxes) will you be ahead staying in your present home, scaling down or renting.

Prop 60 and 90

These are constitutional initiatives passed by California voters.  They provide property tax relief by preventing reassessment when a senior citizen sells his/her existing residence and purchases or constructs a replacement residence worth the same or less than the original.

They encourage a person, age 55 or older to "move down" to a smaller residence. When a senior citizen acquires a replacement property worth less than the original property, he/she will continue to pay approximately the same amount of annual property taxes as before.

When the senior citizen purchases or constructs a new residence, it is not reassessed, if he/she qualifies. The Assessor transfers the factored base value of the original residence to the replacement residence.

The seller of the original residence, or spouse who resides with the seller, must be at least 55 years of age at the time of the sale.

The replacement residence must have been purchased or constructed on or after November 5, 1986 if the original was located in Los Angeles County.  The replacement residence must have been purchased or constructed on or after November 9, 1988 if the original was located in any other California county. Claims must be filed within three years following the purchase of the replacement residence.

Transfer Base Year Value to a Replacement Property Located in Another County

As of January, 2001, each of the following counties has an ordinance implementing the intercounty value transfer provision of Section 69.5 of the Revenue and Taxation Code (Prop. 90) Alameda, Los Angeles, Modoc, Orange, Santa Clara, San Diego, San Mateo, and Ventura.

Reverse Mortgages

Something that is relatively new is the Reverse Mortgage.  The thinking behind the reverse mortgage is to allow retirees to stay in their homes and use some of the equity in their home.  You will need to find out all the ‘pluses’ and ‘minuses’ about a reverse mortgage.

• To qualify you must be 62 and live in your home
• The amount you get depends on your age and what your home is worth
• You may receive 30% to 70% of your home's value
• Remember you may need to pay off an existing loan with some of the money
• The loan may be set-up to pay you for the rest of your life or until you move
• If you sell the house, you pay back the loan
• When you die, your heirs may sell the house, pay back the loan plus interest and keep any proceeds above the debt amount
• You need to shop around for the best deal and make sure that this type of loan makes the most sense in your unique situation. Talk to your financial advisors.
• And remember, if it sounds too good to be true, it probably is.