Should I Sell My California Home or Use the Equity?

Quick Comparison: Selling vs. Using the Equity

The table below is a summary. It is not a recommendation. "Using the equity" covers several tools that differ from one another, and the next sections explain the differences.

What Selling the Home Actually Involves

Selling is the simplest path to describe. It also changes the most. The home's equity becomes cash in one lump sum, ownership ends, and the homeowner needs a new place to live.

Federal law can exclude much of the profit from tax. Under 26 U.S.C. § 121, gross income does not include gain from selling a home that was "owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more" during the five years before the sale. In plain words, the owner must have owned and lived in the home for at least two of the last five years. The excluded amount "shall not exceed $250,000." For a married couple filing jointly, it is $500,000, if either spouse meets the ownership test, both meet the use test, and neither claimed the exclusion on another sale in the prior two years. Gain above the exclusion may be taxed. The IRS explains the current rules in Publication 523. The California Franchise Tax Board publishes how state income tax treats a home sale.

Proposition 19 can help a homeowner who is at least 55, or disabled, and buys another California home. It lets the old home's property tax base move to the replacement home. It is explained in the property tax section below.

Several costs reduce the money that is left after a sale. They include real estate commissions, transfer taxes, closing costs, and any tax on gain above the exclusion.

After the sale, the household still needs housing. Renting, moving in with family, and buying a smaller home each carry their own costs and tradeoffs. A family thinking about selling the house or using equity often finds that this question about the next home shapes the rest of the decision.

What Using the Equity in Place Involves

All the equity tools share one feature: the homeowner stays in the house while drawing on its value. Each is still a loan that someone repays.

• Home equity line of credit (HELOC). A HELOC is a revolving credit line secured by the home. The borrower draws money during a draw period and repays it during a repayment period. Monthly payments are required. The loan's terms may let the lender reduce or freeze the line.
• Cash-out refinance. A cash-out refinance replaces the current mortgage with a larger one and pays the difference in cash. Monthly payments are due on the new, larger loan.
• Reverse mortgage (HECM). A Home Equity Conversion Mortgage is, as the Consumer Financial Protection Bureau explains, a home loan "only for homeowners who are 62 and older," with no monthly mortgage payments. "Interest and fees are added to the loan balance each month and the balance grows." The borrower must use the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. The loan generally comes due when the borrower dies, sells, or moves out, and when both the borrower and any eligible spouse or co-borrower have died or moved out, the loan must be paid off.

The CFPB also notes that a HELOC or a home equity loan "usually" has monthly payments, and that both "depend on your income and credit," in its reverse mortgage guide. The HECM program page from HUD says the HECM is "the only reverse mortgage insured by the U.S. Federal Government" and is available only through an FHA-approved lender.

Counseling is a consumer protection step that comes before a HECM. The CFPB says a borrower must receive counseling from a HUD-approved agency on eligibility, the financial implications, and other alternatives. Federal rules limit the HECM origination fee, and the lender discloses it.

The differences between a HELOC and a home equity loan matter for anyone choosing between those two.

California Property Tax: What Changes and What Stays the Same

For a long-time California owner, the property tax bill can weigh as heavily in this decision as the sale price does.

Proposition 13 sets a home's assessed value, the value the tax is figured on, at its purchase price. It limits how much that value may rise each year. After decades, a long-time owner may pay tax on an assessed value well below what the home would sell for. When the home is sold, the buyer's assessed value is set at the new price, and the seller's protection on that home ends.

Proposition 19 can carry that base forward. The Board of Equalization explains that, for owners at least age 55 or disabled, the base year value of the original home can move to a replacement home, as long as one transaction occurs on or after April 1, 2021, and the original home is sold within two years of buying the replacement. The original home must have been the owner's principal residence and eligible for the homeowners' exemption. The claim is filed with the assessor of the county where the replacement home sits, within three years of the purchase. The owner who buys first pays tax on the replacement home's full market value until the original home sells.

Keeping the home and borrowing against it does not change who owns it. The CFPB notes that with a reverse mortgage "the title to your home remains in your name." Because ownership stays the same, the existing tax base generally stays in place. The county assessor confirms any reassessment question.

The State Controller also runs a Property Tax Postponement program. It lets an eligible homeowner defer current-year taxes, secured by a lien that must eventually be repaid. For 2026-27, eligibility includes at least 40 percent equity, household income of $57,002 or less, and other requirements. The fact sheet adds that the homeowner must be at least 62, blind, or disabled, and must not have a reverse mortgage. The 40 percent equity test appears in Revenue and Taxation Code section 20583.

For a long-time California owner, the property tax picture can shift the decision as much as anything else on this page.

When Selling Fits Your Situation — and When It Doesn't

Picture a homeowner who has already been thinking about moving closer to a daughter. For someone in that position, selling may simply line up with a plan already underway.

Selling tends to fit when:

• A move is coming anyway. The homeowner plans to live near family, downsize, or move to a care community.
• Upkeep has become too much. The house needs more work than the homeowner can manage.
• A clean break matters. The homeowner wants no loan on the home and no house to maintain.
• All the equity is needed. No borrowing tool would provide enough money.

Selling tends not to fit when:

• The homeowner wants to stay. Staying in a familiar neighborhood is part of the plan.
• The tax base is very low. A long-held California assessment would be lost, and Proposition 19 may not apply to the next home.
• The next home is unclear. There is no settled answer about where to live.
• The gain is large. Profit above the federal exclusion could create a sizable tax bill.

A tax professional can model the likely capital gains outcome before the home is listed, so the family sees the net figure first. A family helping aging parents often finds that this calculation settles much of the question.

When Staying and Using the Equity Fits — and When It Doesn't

For a homeowner who wants to stay, the real question is often whether the house can keep paying its own way.

Using the equity tends to fit when:

• Staying is the goal. The homeowner wants to age in place.
• The need is ongoing. The income gap recurs each month rather than arising once.
• No required payment suits the budget. The homeowner is 62 or older, and a reverse mortgage without monthly mortgage payments fits a fixed income.
• Keeping the home for heirs matters. The family hopes to pass on the house.

Using the equity tends not to fit when:

• The home's costs are hard to carry. The homeowner cannot reliably pay taxes, insurance, and upkeep. The CFPB warns that a reverse mortgage borrower "could face foreclosure" if that money runs out.
• A move is likely soon. A reverse mortgage comes due on move-out, and the CFPB calls it "an expensive way to cover short term cash needs."
• The need exceeds the equity. The tools cannot provide more than the home supports.

For heirs, the reverse mortgage balance described above keeps growing with interest and charges, so less equity is left over time, while the borrower's obligations continue until the loan comes due. The CFPB notes that neither the borrower nor the heirs "will have to pay back more than your home is worth." A HUD-approved counselor can walk through the HECM in detail. HUD's roster lists counselors, and the agency gives (800) 569-4287 as its number. A broader view of home equity options for seniors sets these tools beside one another.