What Tax Implications Come With Buying or Selling a Home in San Jose? A Complete 2025 Guide

Buying or selling a home isn’t just a financial decision — it’s a tax decision.
And in a high-value market like San Jose, understanding your potential tax implications can help you:

• reduce your tax burden

• avoid surprises

• plan smarter

• prepare the correct paperwork

• and maximize your net proceeds

This guide breaks down what you need to know whether you're buying, selling, or investing — using simple explanations for homeowners and deeper insights for investors.

For a full breakdown of San Jose–specific rules, visit the complete
👉 San Jose Real Estate Taxes, Contracts & Disclosures Guide

SECTION 1 — TAX IMPLICATIONS WHEN BUYING A HOME IN SAN JOSE

1. Property Taxes

In Santa Clara County, the base property tax rate is roughly 1.1% of the assessed value, plus local bonds.
Your assessed value is based on your purchase price, thanks to Proposition 13.

This means:

• you won’t be taxed on market value

• your property tax increases are capped at 2% per year

2. Mortgage Interest Deduction

Most San Jose buyers can deduct mortgage interest on loans up to $750,000 (per federal guidelines).

This is most beneficial for:

• first-time homeowners

• high-income buyers

• anyone carrying a large mortgage balance

3. Property Tax Deduction (SALT Cap)

You can deduct state/local taxes up to $10,000 per year.

In high-cost areas like San Jose, this limit is reached quickly — but still important to note.

4. Points & Loan Fees

Some closing costs may be deductible in the year you purchase.
This varies by loan type and your tax filing status, so you should consult a CPA for exact eligibility.

If you're early in the buying process, here’s a full step-by-step:
👉 San Jose Home Buying Process Guide

SECTION 2 — TAX IMPLICATIONS WHEN SELLING A HOME IN SAN JOSE

1. Capital Gains Tax

If you’ve owned and lived in your home for 2 out of the last 5 years, you may qualify for the Primary Residence Exclusion:

• $250,000 tax-free (single)

• $500,000 tax-free (married)

In San Jose, where appreciation is often substantial, this exclusion can save sellers hundreds of thousands of dollars.

2. Factors That Affect Capital Gains

Your gain is calculated as:

Sale Price
– Selling Costs
– Cost Basis
= Your Gain

Cost basis includes:

• original purchase price

• major improvements

• closing costs on purchase

Tracking improvements is key.
Every upgraded kitchen, bathroom, roof, window, or addition can increase your cost basis and reduce your taxable gain.

To understand your home’s true market value, start here:
👉 Home Selling Guide

3. Selling Costs That Reduce Taxes

IRS allows adjustment for:

• real estate commissions

• title & escrow fees

• transfer taxes

• certain repair credits

These expenses reduce your taxable gain — and are often overlooked by sellers.

SECTION 3 — TAX IMPLICATIONS FOR INVESTORS & RENTAL PROPERTIES

This is where many homeowners miss opportunities.

1. Depreciation

Rental property owners can depreciate the structure over 27.5 years.

This deduction:

• reduces taxable income

• creates paper losses

• improves overall cash flow

But when you sell, depreciation is recaptured and taxed — unless you use strategy #2.

2. 1031 Exchange (Powerful Tax Deferral Tool)

A 1031 exchange lets you sell an investment property and defer capital gains tax if you purchase another “like-kind” property.

This is a powerful way to:

• grow your portfolio

• avoid immediate tax liability

• leverage appreciation

• reposition assets

Full investor strategies are covered here:
👉 San Jose Real Estate Investing & Rental Strategies Guide

3. Step-Up Basis (Inherited Property)

If heirs receive a home, the property’s cost basis is “stepped up” to current market value — often eliminating large capital gains.

4. Passive Loss Rules

Some investors can deduct real estate losses against their active income — depending on their income level and IRS classification.

This is where a CPA’s guidance becomes crucial.

SECTION 4 — DOCUMENTS YOU’LL NEED FOR TAX PURPOSES

To properly file taxes after buying or selling, gather:

• HUD-1 / Closing Disclosure

• Final Settlement Statement

• Improvement receipts

• Mortgage interest forms (1098)

• Property tax statements

• Depreciation schedules (if rental)

If you need help understanding documentation, visit:
👉 Contracts & Disclosures Guide

SECTION 5 — When Should You Speak to a CPA?

You should absolutely consult a CPA if:

• you’ve owned the home less than 2 years

• your gain exceeds $500K

• you inherited the property

• you are selling a rental property

• you are doing a 1031 exchange

• you flip homes

• you have major improvements that affect your cost basis

• you own multiple properties

A CPA + a strong real estate agent will protect your equity and minimize your tax burden.

What You Should Do Next

If you're preparing to buy or sell and want to understand your tax exposure, I’m here to help.

We’ll review:

• your timeline

• your cost basis

• your potential exclusions

• your net sheet

• your estimated tax implications

• your long-term strategy

👉 Contact me here and I’ll walk you through everything.

📞 Ready to Navigate Your Tax Implications?

Let’s talk through your home, your numbers, and your long-term plans so you can make confident decisions.

Zaid Hanna
408-515-1613
www.re38.com