One thing to consider is your tax basis. In California, if you’ve owned your home for a while, chances are the property tax on your home is calculated on a house value that is much lower than the current market rate. If you’re over a certain age, then if you sell your house and buy another shortly thereafter you may be able to transfer the reduced property tax basis to your new home. But if you’re under that age, or if you wait too long to buy another, then it won’t apply. It might not be a factor, but it’s definitely something you’ll want to investigate as it could change your decision.
This is no longer true - the "replacement rule - of equal or greater value" was repealed in 1997.
https://www.investopedia.com/terms/deferred-gain-on-sale-of-home.aspIt only applies if former deferred gains were rolled into this house prior to 1997.
What *is* still in effect is the capital gains exclusion - $250k per individual, and $500k per married couple, if you've lived in the home at least 2 of the previous 5 years.
If your gain is lower than that threshold - including purchase price, improvements, transfer taxes and realtor fees - you owe NO capital gains on any of it.
If instead you're talking about the transfer of the PROPERTY TAX assessment rate, that can ONLY be transferred in certain (limited) counties, and only ONCE per couple, after they reach age 55, OR if they are a vet. To qualify, you MUST be on the title of the house you are selling. The number of counties participating in this tax reciprocity program have dwindled in recent years; only 10 California counties still participate.
It's called Proposition 60, and Proposition 90.
https://www.boe.ca.gov/proptaxes/prop60-90_55over.htmThe current Nov. 3 CA ballot has an EXPANSION of this on the ballot, which would allow people to transfer their tax rate 3x in their lifetime, to any county in CA.
So OP - yes - you can sell your home, bank the appreciated gain, and rent with no tax consequences - as long as your gain is under $500k for a married couple.
Keep in mind the owner of the rental may intend to die while still owning it, as the house would then have a new "stepped up basis" for tax purposes, which is a HUGE avoidance of taxes for those heirs. So it could take awhile before the house is on the market, depending on age and health of the owner.