The equity in your home is real. But it doesn't become money until it clears taxes, closing costs, and whatever you choose to do with it next.

Here's what I walk through with every client before we talk about listing price or market timing.

The federal capital gains exclusion — what you get

If you've lived in your home as your primary residence for at least two of the last five years, the IRS allows you to exclude up to $250,000 in capital gains from taxable income if you're single, and up to $500,000 if you're married.

Your capital gain is your sale price, minus your original purchase price, minus the cost of significant improvements you've made over the years.

For a lot of South OC homeowners — families who bought in Beacon Hill or Bear Brand in the early 90s for $350,000 to $500,000 — the current market value puts the total appreciation well above $500,000. The portion above the exclusion is taxable.

The California piece

California taxes capital gains as ordinary income. The combined federal and state tax rate for most OC sellers in this situation is somewhere between 25% and 35%, depending on their total income.

On a taxable gain of $400,000, that could be $100,000 to $140,000 owed. That's not a rounding error. That's a meaningful reduction in what actually goes to your next chapter.

This is why the CPA conversation happens first. Before you set a price. Before you go on the market. Before you start shopping.

Prop 19 and property tax — what transfers, what doesn't

California's Prop 19 (effective February 2021) allows homeowners 55 and older to transfer their current property tax base to a new primary residence anywhere in California. This is meaningful in a state where property taxes are tied to original purchase price under Prop 13.

A home purchased in 1991 for $350,000 is being taxed on that base — roughly $4,300 a year. A comparable replacement home bought today at $900,000 would be taxed on the new purchase price — about $11,250 a year. The Prop 19 transfer can preserve the lower tax base in the new home.

But the transfer isn't automatic. You must file Form BOE-266 within three years of the sale. You must move into the new home as your primary residence within one year of the sale. Missing either deadline means you lose the benefit permanently.

Closing costs and net proceeds

Sellers in California typically pay 5% to 6% in agent commissions (though this is negotiated, and the landscape has shifted), plus escrow fees, title insurance, and transfer taxes.

On a $1.3 million sale, you might be looking at $65,000 to $80,000 in total transaction costs before taxes.

Net proceeds = Sale price, minus loan payoff (if any), minus transaction costs, minus taxes owed.

That's the number to plan from. Not the Zillow estimate.

What to do with the proceeds

How you deploy the equity from your sale depends entirely on what you're doing next. Buying a smaller home. Funding retirement. Helping adult children.

A financial advisor should be part of this conversation, especially if the proceeds are significant. Tax-advantaged strategies exist. Some sellers time the sale to manage their taxable income in a given year. Others combine proceeds with other retirement assets in ways that require coordination.

Your real estate agent — even a good one — doesn't replace that professional. The mistake I see most often is families treating the sale as a real estate decision and not a financial planning event. It's both.

— — —

For a real conversation about your specific equity picture, contact us at www.HudesGroup.com/LongtimeHomeowners or call 949-351-3924.

This is a real estate planning conversation, not tax or legal advice. Please coordinate with your CPA and estate attorney for guidance specific to your situation