Did you know that selling your home without a plan could trigger a massive tax bill? It happens to seniors in California every day. They are paralyzed by the fear of losing their equity to the IRS or the tax assessor.
But with the right knowledge, you can make a move that actually improves your financial situation. In this post, I am breaking down the three critical tax rules every Orange County homeowner needs to know before selling in 2026.
1. The Capital Gains Exclusion
Many longtime owners in cities like Brea or Fullerton are sitting on huge equity. They fear the Capital Gains tax.
- The Rule: The IRS allows a single person to exclude up to $250,000 of gain, and married couples to exclude up to $500,000, as long as you have lived in the home for 2 of the last 5 years.
- The Reality: Even if your gains exceed this limit, paying tax on the overflow to unlock millions in equity is often still a smart financial move.
2. Prop 19 (The Tax Base Transfer)
This is the game-changer for downsizers.
- The Rule: You can transfer your current (low) property tax base to a new home anywhere in California.
- The Catch: You must buy a property of equal or lesser value to keep the base entirely. If you buy up, you only pay extra tax on the difference. This allows you to move without your property taxes skyrocketing.
3. The Trust & Step-Up Basis
This is the most overlooked rule. Many parents add their kids to the title to "simplify" inheritance.
- The Mistake: Adding kids to the title passes on your original cost basis, leading to a huge tax bill for them later.
- The Fix: Put the home in a Trust. This allows your heirs to receive a "Step-Up in Basis" to current market value when you pass, potentially eliminating their Capital Gains tax entirely.
Bottom Line
Don't let tax fear paralyze you. If you understand these three rules—Capital Gains, Prop 19, and Trusts—you can navigate your sale with confidence. If you want a Net Sheet showing exactly what you will walk away with, call my team today.