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The “Bay Area to Placer” Move: Managing Capital Gains Tax on Your Home Sale
The migration is undeniable. Families are selling modest homes in San Jose or Fremont for $2 million and moving to Granite Bay or Rocklin to buy estates for half the price. It’s a brilliant lifestyle move, but it is often a tax compliance disaster.
The problem lies in the appreciation. If you bought a home in the Bay Area in 1990 for $300,000 and sell it today for $2.3 million, you have a $2 million gain. The IRS Section 121 Exclusion only allows you to exclude $500,000 of gain (if married). That leaves $1.5 million in taxable capital gains.
The IRS Audit Risk: “Prove Your Basis”
Many new Placer County residents are shocked to receive an IRS audit notice two years after their move. The IRS will challenge your calculation of the “Cost Basis.”
Your taxable gain is calculated as: Sales Price – (Purchase Price + Improvements).
The higher your improvements, the lower your tax. But did you keep receipts for the kitchen remodel you did in 2005? Do you have the invoice for the roof you replaced in 2012? If you cannot prove these expenses, the IRS will disallow them, potentially adding hundreds of thousands of dollars to your taxable income.
How We Save Your Wealth
At Kugelman Law, we can help with Basis Reconstruction. When receipts are lost, we don’t give up. We use:
- Permit History: Pulling old building permits from your previous county to prove work was done.
- Contractor Affidavits: Locating previous vendors to attest to the work.
- Before/After Appraisals: Using historical data to estimate the value added by renovations.
The “Partial Exclusion” Mistake
Did you move to Placer County because of a job change or health reason? Even if you didn’t live in your previous home for the full two years required for the exclusion, you might qualify for a Partial Exclusion. Many CPAs miss this exception. We review the specific circumstances of your move to maximize every deduction available.
You moved to Placer County to enjoy your wealth, not hand it over to the IRS. If you are facing a tax bill from your home sale, contact us for a comprehensive review.