"You may never sell your property, but if you do, odds are you'll have taxes to pay. After all, the real estate market is supposedly coming back. Usually, the longer you hold property, the bigger your gain. The good news is that usually the gain will be capital, meaning a federal tax rate of only 15%. But California's tax rates aren't as forgiving, so you'll pay up to a whopping 9.55% (in some cases, even 10.55%) to the Golden State. That gives you two good reasons to consider whether you can eliminate or defer the tax even if you have a gain.
First, you'll need to distinguish between personal use property like your principal residence and investment or business property. As we'll see, sometimes these rules can interact. "