How Do I Minimize My Capital Gains and Property Tax Impact When I Sell?

Many elderly residents in Silicon Valley bought their homes decades ago when prices and property taxes were much lower. With soaring home values and property taxes today, seniors often find themselves "locked" into their homes because moving could mean facing significantly higher taxes elsewhere or unaffordable housing costs.

However, Proposition 19, effective April 1, 2021, offers some relief by allowing eligible homeowners aged 55 and older, severely disabled individuals, or wildfire victims to transfer their existing property tax base to a replacement primary residence anywhere in California, up to three times. This means seniors can move without facing a large property tax increase, even if the new home is more expensive, though adjustments apply if the replacement home’s value is higher.

When a spouse dies, the surviving spouse often benefits from a tax provision known as the "step-up in basis." This rule can significantly reduce or even eliminate capital gains taxes if the surviving spouse later sells inherited assets, such as a home or investments. The concept of "step-up in basis" is important for elderly sellers and their heirs. The property's tax basis is typically adjusted to its current market value, potentially reducing capital gains taxes if they or their heirs sell.