[quote=barnaby33]FLU, are you referring to an 1031 exchange?
Josh[/quote]
no, I was referring to seniors exchanging properties and keeping their tax basis.
If you are wondering about keeping property tax basis on inheritance, that’s prop 58 and prop 193.
the former is what happens when parents transfer to kids.
the later is what happens when grandparents transfer to kids.
CA and our Federal government disproportionate ly rewards property owners versus everyone else.
1031 exchange is good in that it allows you to avoid paying any depreciation recapture and capital gains on rental properties if you sell and buy something else. So a lot of people borrow against it, sell and exchange property with something and carry the debt over while freeing up cash. There are rules for the exchange, and they aren’t exactly easy. but if you call pull it off, good.
Separate tax laws governs what happens when you die and your kids inherit the property.
Basically , upon death, all sort of depreciation recapture and the property’s cost basis gets reset upon transfer to your kids. So If the house you bought for $100k is now worth $500k, your kids “cost basis” is now $500k so if they sell right away, they owe zero capital gains. Also, if it was a rental, all of the depreciation recapture you normally would have to pay ends up being reset to $0 for your kids… Hence why a lot of people never sell property unless they are in financial distress….If you need money, borrow against it….
Now before, one thing your kids might be subject to was inheritance tax if your estate was large enough. But that was what a living trust was for if you are a joint couple… Using I believe a bypass trust, you can double the amount excluded from estate taxees..
However, with the recent changes to estate taxes by the GOP and Trump, for most people in practice, there no longer is estate taxes since the upper bound on that exemption is $10million i think. lol…and for some of us abitious enough to exceed that, I think there are ways to double that that exemption too as a joint couple..
of course all these rules can change … if the financial situation of the majority of people in this country continue to decline, home ownership in CA increasingly get more difficult for most people, and the property ownership is concentrated is a small percentage of the population….Enough people will be pissed and put something on a CA ballot that would then have a good chance of passing….if in doubt, consider CA the rent control bill on November’s ballot lol…
