Buying a home now...

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IrvinePerson_IHB

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I know everyone here pretty much says it's not the time to be buying a home and to wait a year or two when the prices comes down. However, my parents insist on buying a home now and there's not much I can do to stop them but to try to give them good advice.





First of all, are all those Quail Hill homes have no lots? I know the homes there are pretty new and all, but do any of them have a decent (6000 sq ft or more) lot, or they are all pretty much "reach out to your neighbor's house from the window" type of deals?





Second of all, my parents are considering selling their home in another bubbled price zone (Northern California), so I'm guessing it is ok to sell a bubble priced home and buy another one? If they wait 2 years their other home will probably fall in price also so there isn't much loss?





If they sold their first home and sat on the money (they owned the home for over 10 years), would they have to pay taxes? If not, isn't it better to sell it, sit on the money and all the interest that comes form it, and then wait until the ride is over and then buy?
 
Sell, take your exemption on capital gains on the sale of the home, put it in a high-yield CD for two years, then buy their final modest home after that. I say modest since I know that a lot of retirees and older folks that can't seem to take that step down and will eventually, as they get older, have great regrets about having a house too big to clean and keep up with. Especially when rational decision making starts to deteriorate and they find themselves trapped between a home they can't manage to maintain and the difficulties of selling and finding another.
 
If I'm not mistaken, if your parents sold their primary residence of 10 years, the first 500k equity gain is tax exempt. You may want to consult a tax/accountant professional however.





If your parents never lived in Irvine before, suggest to them to rent first so they can look around and find something they really like, before buying.
 
They are eligible for Prop 90, that's why they are considering doing this.





I am the one that lived in Irvine for the past 3 years after graduating from college, and my parents somehow followed me. I remember something about the 500k equity gain rule, except their property has more than 500k equity gain.. it is more like 800k equity gain (I know crazy bubbles heh). Do you have to spend your equity immediately? Or within the same tax year? That could give them more time to look around.





I'm taking it then that using Prop 90 and that the fact that they will have to pay taxes anyways if they keep their equity, that they should consider buying a home? They can rent for a few months and look around anyways since I doubt their current home will sell instantly...
 
IrvinePerson



Also remember capital gains taxes are relatively low right now. If Hilliary or Barack win the white house they have all commented on raising the capital gains tax. On top of that...the wealth they have in the house, IMHO, is only paper wealth so it has really added anything to their "liquid" cash position.



Tell them to sell the house, take advantage of Prop 90 and current taxes, rent in Irvine for a yr, and then buy a nice home here with a big pool house for you to live in...kidding just wanted to add some humor.
 
IP - If your parents are married and they live in California and they both are on title and they have lived in the home for any two of the last five years, their total exclusion from capital gains tax is $500,000. And the remainder of any capital gains is taxed at their long term cap gains rate, max of 15%, if they owned the home for more than one year.<p>


It makes no difference if they reinvest the money immediately or later for tax liability assessments on the sales transaction. A like-kind, 1031, exchange is applicable to investment or business property only.
 
Hm... the math then says that if you have $800k equity gain, and you cash out from it you'll take home 500,000 + 300,000 * 0.85 = 755000.



That's not that much in taxes and property values will most definately fall more than just 45k for a 800k home. However they can't take advantage of prop 90 if they wait 2 years right? I'm under the impression that prop 90 is for transferring your property tax from one home to another and 2 years is a little long to qualify for "transfer". Correct me if I'm wrong...
 
If your parents are selling bubble to buy bubble, yeah, they'll be OK, they're just giving up a hundred thou or so they could make by timing the the market. BUT, make SURE they don't buy until after they have CLOSED escrow on their old place. Otherwise they could end up owning two houses in expensive bubble areas and being wiped out. I emphasize CLOSED escrow because with the current credit crunch houses are falling out of escrow like leaves in October.<p>



Edit - a sneaky tactic might be to convince them to rent here until their old place sells because "oh, you'll get a much better price if you vacate and stage your old place". Then use delaying tactics like urging more looking and hardball offers to slow down the purchase here.
 
<p>IP</p>

<p>I believe that Prop 90 allows for a same price or less purchase at time of sale or a 5% increase at year 1 and 10% increase at year 2. </p>

<p>awgee may want to comment on this.</p>

<p>They should have 2 years to transfer the tax basis. </p>

<p>Also remember to deduct all costs of improvements over the 10 years from the gain to establish the basis and lower the taxes due.</p>

<p>Regards</p>
 
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