Expert: Lori Frankfort - 4/21/2009

Question
QUESTION: I am a Canadian thinking of buying in California. We have been told it is best to
set up a trust and put one of our children's names on it in case something
happened to us? Also if we resale the property do you know what if anything we
would have to pay the state of California? Do you know a site we could go and
find more info on this subject?

ANSWER: I can't advise you on opening a trust, you'll need to contact a Real Estate Attorney for the best advice on how to take title for your home.

As far as paying taxes on the resale, there is a capital gains tax everywhere in the U.S.  If you live in the home for at least 2 years out of 5 then you can take a capital gains tax exclusion of up to $250,000 for a single person or $500,000 for a married couple.

If it's an investment property or you don't stay in the home for 2 years then you pay a pretty significant tax on the sale, which is withheld by law through escrow when you sell the home.  I think currently the combined Federal and State tax is 25%.

Best,
Lori Frankfort

---------- FOLLOW-UP ----------

QUESTION:
Thank you for your quick reply. When you say live in it do you mean year round or would the fact that we lived 3 months out of the year ( it would be empty the other months) qualify as living it for the 2 years?

Answer
Technically it is supposed to be a total of 2 years out of the past 5 years, so if you only lived in it 3 months per year then it wouldn't qualify.  If you lived in it 5 months per year it would qualify.  Now I've never heard of anyone getting audited on this, but if you did then they might ask for evidence that you lived there for that amount of time.  I'm just not sure how they audit for it.

Best,
Lori