Paying taxes when sell larger home & move to smaller one in CA?

Question

Right now, I live with my mom (my dad passed away) in a 2000 sq ft, 4/3 house in southern California, and the mortgage is $3K/month. We have another house that we've paid off the mortgage for and we're renting it out. It is 1200 sq ft, 3/2 and close to where we currently live

I thought it would be better if we just sold or rented out our current home and moved back into the smaller home. However, my mom mentioned we would have to pay alot in taxes, whereas if I were to inherit it from her when she passes away, then I wouldn't have to pay as many taxes on it

Is it worth it to stay in this house instead of moving back into the smaller house?

Natalie Kolodij · Answer

Your mom is a wise lady.

So assuming they owned the house together when he passed away she received what's known as a stepped up basis on his half.

This means that 50% of the property is now "worth" the value it was on the date of his passing.

So if they originally bought it for $100k - each of their half was $50k

But when he passed away say it was worth $500k - now 1/2 of the house is worth $250k (his 50% of the 500) and 1/2 is worth her original 50% still.

So now if it sold it would be sale price - $300k, instead of $100k. So gains could be much less. But it's very situational dependent.

So it's important to talk to your CPA to see what the actual impact would be. There is also an option that could be utilized involving a corp that may work well for tax avoidance in this situation as well.

Working with a REI focused tax and finance professional can help walk you through the financial impacts of both options.

Paying taxes when sell larger home & move to smaller one in CA?

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