What are the tax implications of selling my home in Huntington Beach?

January 10, 2025 | 714-336-0394 | Scot@CampbellRealtors.com | Broker of Record – Coldwell Banker-Campbell Realtors

It is important to understand the Tax Implications when Selling your home in Huntington Beach

Selling your Huntington Beach home for a profit might sound like an exciting opportunity, especially with the area’s strong demand and rising property values.

Whether you’re taking advantage of increased housing prices or moving for a job or lifestyle change, it’s essential to consider the tax implications before placing that For Sale sign in the yard. Understanding your tax liabilities can help you make a more informed decision.

Will You Have a Realized Gain?

A realized gain is the profit you make from selling your home, and it’s what the IRS uses to determine whether you owe taxes. However, calculating this number isn’t as simple as subtracting your purchase price from your current selling price. Use the following formula to determine your realized gain for your Huntington Beach home:

Current Selling Price – Selling Expenses – Adjusted Basis = Realized Gain

Let’s break down these components:

Current Selling Price: The total amount for which you sell your home.
Selling Expenses: Costs directly tied to closing the sale, such as title fees, real estate commissions, attorney fees, and closing costs. Property taxes, transfer taxes, or HOA dues cannot be included here.
Adjusted Basis: This includes the price you originally paid for your home, plus eligible closing costs (e.g., survey fees, title insurance, or inspections) and the cost of major renovations or upgrades. Routine maintenance doesn’t count, but substantial improvements like a roof replacement, kitchen remodel, or a new pool can be included.

Renovations not only reduce your tax liability but can also increase your home’s market value, making it easier to attract buyers in competitive Huntington Beach neighborhoods like Downtown, Seacliff, Huntington Harbour, Edwards Hill, Brightwater, Bolsa Landmark, Huntington Court & Place, Meredith Gardens, Huntington Landmark, Summerlane, Beachwalk, and Pacific Ranch.

If the final result is a positive number, you have a realized gain.

Will You Owe Taxes on the Realized Gain?

Whether you pay taxes on your realized gain depends on how long you’ve owned and lived in your home.

Short-Term Gains (Owned Less Than One Year):
- If you’ve owned the home for one year or less, the IRS considers your profit a short-term gain. This gain is taxed at your regular income tax rate, which could be significantly higher than capital gains rates.
- Unfortunately, if you sell the home at a loss within this period, you also cannot claim the loss as a tax deduction.
Long-Term Gains (Owned More Than One Year):
- If you’ve owned the home for longer than a year, any realized gain is considered a long-term capital gain. Long-term gains are taxed more favorably. For example, if your income tax rate is 15%, you may owe 0% on the realized gain.
Exemptions for Primary Residences:
- If you’ve lived in your Huntington Beach home for at least two of the last five years and used it as your primary residence, IRS Section 121 implies you can exclude:
  - $250,000 of your realized gain if you’re single.
  - $500,000 of your realized gain if you’re married and filing jointly.
- If you don’t meet the two-year requirement but are selling due to life events like work relocation, health issues, divorce, or natural disasters, you may still qualify for a partial exemption.

Strategies to Reduce Your Tax Liabilities

If you’re concerned about tax obligations, consider the following options:

Wait to Sell Until You Meet the Two-Year Rule: If you haven’t yet lived in your home for two years, waiting could save you thousands of dollars by qualifying you for the tax exclusion.
Turn Your Home Into a Rental Property:
- Converting your Huntington Beach home into a rental property could make sense if selling isn’t immediately advantageous. You may still be eligible for the $250,000/$500,000 tax exclusion while also benefiting from rental income.
- Additionally, tax deferrals through Section 1031 exchanges allow you to defer capital gains taxes if you use the proceeds from your sale to purchase a similar investment property.
Keep Detailed Records of Improvements: Ensure you track all eligible upgrades and renovations, as these increase your adjusted basis and reduce your taxable gain.
Consult a Tax Professional: If you’re facing a significant gain or complex circumstances, working with a tax attorney or CPA can help identify exemptions or strategies to reduce your liability.

Example of Realized Gain Calculation using IRS Section 121 exemption

Imagine you purchased a home in Huntington Beach for $900,000, spent $100,000 on eligible upgrades (e.g., a kitchen remodeling and roof replacement), and sold the home for $1,575,000. You also incurred $75,000 in selling expenses (e.g., real estate commissions and closing costs):

$1,575,000 (Selling Price) – $75,000 (Selling Expenses) – $1,000,000 (Adjusted Basis) = $500,000 (Realized Gain)

If you’re single, you can exclude up to $250,000, so you would owe taxes on $250,000 of the gain.

If you’re married, the exemption is $500,000, so you would owe zero taxes on the gain. .

Final Thoughts on Selling in Huntington Beach

While Huntington Beach’s strong housing market makes selling an appealing option, it’s essential to calculate your tax liabilities before finalizing the sale. If you’ve lived in your home for less than two years, waiting to meet the IRS exemption requirements could help you avoid a hefty tax bill.

If waiting isn’t an option, consider consulting a tax professional to explore strategies that reduce your liabilities. Whether you’re moving for work, upgrading to a larger home, or downsizing, understanding the tax implications ensures you keep more of your hard-earned profit—and enjoy your next chapter worry-free.

One last item: No matter what, be certain to verify all aspects of the tax implications of selling your home before you list or sign a purchase agreement. Tax laws are subject to change, and many aspects you read about above could change.

A quick call to an experienced Realtor in Huntington Beach could help you learn about upcoming changes before they are implemented.

Important tip: Do not assume listing with a big “team” or “group” will result in you working with the most knowledgeable and experienced agent. While the “teams” tout their success in closing many homes and being #1 (in the state, country, or universe), the fact is they have many realtors who give “credit” to just one “team leader”. When listing your home, you may speak to that team leader initially, but your file will most likely be passed to a junior associate for the remainder of the transaction. The junior associate will have nowhere near the education, experience, and skill to be found in a top individual Realtor working in your market. A top

individual agent will have assistants that help with photography, marketing, and transaction paperwork, but the important transaction tasks will be handled by the Realtor you hired!

SmartAsset.com has a capital gains tax calculator that might be helpful provided you input the correct data: https://smartasset.com/investing/capital-gains-tax-calculator