By Scott Burns  |  March 30, 2007

Q Can you suggest the best way to minimize capital gains on the sale of my house? My husband and I bought a house in San Diego in 1975 for $65,000. My name was on the title. We made about $130,000 of improvements. He died in 1999, when the house was worth $325,000 to $350,000. There were no changes done to remove my husband’s name from the mortgage, title, etc. after his death. Now I am 75 and would like to sell the house the value of which is around $600,000.

The mortgage is paid off. I took out a $90,000 home equity loan to assist in fixing it up for sale and provide me with rental money while the house is being shown for sale. I have not remarried. The house I hope to buy in Texas is $360,000. I have been told I should expect my taxes to be near $50,000. It seems as if I will not be able to afford a house worth half of what the San Diego house is worth.

I only have Social Security to live on. I was told to just buy a cheaper house, but it doesn’t seem right that I can’t go into a house with about the same price as the one I’m leaving.

A You may have misunderstood your realtor. As I see it, your tax liability on the sale of the house will be quite small, about $10,000. You can understand it by walking through the figures with me.

First, the cost basis of the house is $195,000 ($65,000 purchase price plus $130,000 in improvements). So your share of the cost basis for the house is $97,500. Your husband’s share was the same, but values are “stepped up” at death to the value at that time. The share you inherited from your husband has a cost basis of $162,500 to $175,000. As a consequence, the cost basis of the house when you sell it will be about $260,000. In addition, as a single-income tax filer, you have an exemption of $250,000.

So you can realize about $510,000 from the sale with no tax liability. You can also deduct the realtor’s commission and other costs immediately related to selling. On a $600,000 sale, that could be $36,000 plus fix-up expenses. So your taxable capital gain will be about $54,000 less the fix-up expenses. Your tax bill will probably be about $10,000, less if you spent much on the presale fix-up. When all the paperwork is done and the home equity loan has been paid off, you will have about $464,000 cash. You should have an accountant help you with this.

That’s the good news.

If Social Security is your only source of cash income, buying a $360,000 house is a really bad idea. Remember, real estate taxes in Texas are a lot higher than in California. You’re likely to pay about $7,200 in annual real estate taxes on a $360,000 house. Add utilities, insurance and maintenance, and the annual cost of owning the house, without a mortgage, is likely to take every dime of your Social Security income. Of course, you’ll still have $100,000 in cash left from the home sale, but it would have to cover all of your other expenses for the rest of your life.

Fortunately, you can duplicate your San Diego house for much less than $360,000. According to the National Association of Realtors, for instance, the median single family home resale price in San Diego was $579,800 at the end of 2006. That’s 3.3 times the $175,200 median resale price of existing homes in Austin, the most expensive city in Texas. (Here are the median prices in other Texas cities: Houston, $148,600; Dallas, $144,300; San Antonio, $140,600; and El Paso, $131,800. And don’t forget Amarillo at $108,300.)

The difference in housing prices tells you why it currently costs $2,669 to rent a 24-foot Budget truck to move from San Diego to Dallas but only $299 to rent the same truck to move from Dallas to San Diego — lots of people are thinking what you’re thinking. Empty moving trucks are piling up in Texas.

If it were my choice, I’d set a target price of about $150,000 for your house in Texas. That would leave you with a $300,000 investment fund plus your Social Security income to support your personal expenses, the new house — and an occasional trip to La Jolla.

William Pack
Express-News business writer Although the local economy may not grow at a breakneck pace this year, two reports released Thursday reinforced San Antonio’s standing as a vibrant economy that is withstanding the woes afflicting the nation’s economy.”Overall, the message from the numbers for 2006 has been it was a great year for San Antonio,” said Joe Krier, president of the Greater San Antonio Chamber of Commerce. “San Antonio has been on a roll and continues on a roll.”

The chamber’s fourth-quarter economic report showed that the unemployment rate fell again, leaving San Antonio with the second-lowest rate of the state’s major cities behind Austin. Sales-tax rebates grew by nearly 11 percent in the quarter from a year earlier, and commercial real estate filled up at a healthy clip. The city in the fourth quarter hit five-year lows for vacancy rates in office space and industrial space.

Also Thursday, job numbers released by the Texas Workforce Commission showed the area overall experienced a healthy year.

Travis Tullos, an economist who heads the chamber’s economic analysis panel, said a housing slump has been blamed for much of the turmoil in the economy nationally. San Antonio, on the other hand, still offers “great affordability” in housing and is doing well compared with residential markets elsewhere, Tullos said.

The chamber’s numbers showed existing home sales fell by 2.5 percent in the fourth quarter from a year earlier, but the average home price was up by 6.5 percent to $171,815. Metrostudy has reported that builders started a record 19,092 single-family homes last year and will build 17,000 more this year, which would be the second-best number behind 2006.

“Some cities would kill for those homebuilding numbers,” Krier said.

The Texas Workforce Commission jobs numbers for January showed a fairly typical slump in hiring for the month, but 3.2 percent job growth for the year ending in January. That equates to 25,300 new jobs for the year.

“It’s very good growth to move into a new year with,” said Aaron Smith, Alamo WorkSource’s labor market analyst. “Couple that rate of employment expansion with low unemployment … and what we have is a job market that is providing area residents with extremely good career growth opportunities.”

San Antonio’s unemployment rate in January rose to 4.4 percent from 3.8 percent in December. But it was lower than the 4.9 percent recorded in January last year and is the strongest January rate the area has experienced since 4.1 percent in 2001, Smith said.

Nationally, unemployment reached a four-month high in January at 4.6 percent. Statewide, it was 4.5 percent. Both of those rates, unlike the area unemployment total, are adjusted for seasonal factors.

For the month, San Antonio lost 11,300 jobs, the biggest hits coming in sectors covering educators and the retail trade, which typically sustain losses in January. Smith said the drop-off in January has often been steeper than this year, although retailers fared worse this year than last with a loss of 5,000 jobs.

Krier said job growth has continued in San Antonio because existing businesses are doing well. While growth may not continue this year at the historic levels it reached the past two years, Krier believes it should remain strong.

“We’ve just gone from being fabulous (in 2006) to being great this year,” Krier said.