Some thoughts for downsizing empty nesters and beyond…
A married couple can gain 500k on the sale of their primary residence without being taxed by the federal government. For a single person the limit is 250k. Above 500k (or 250k) you will be taxed on the proceeds of your sale as long term capital gains. To get this benefit you have to sell the home within 3 years of moving out of it. It’s a little more complicated but it has to be your principle residence 2 of the last 5 years to qualify. https://www.irs.gov/taxtopics/tc701
You can 1031 exchange your property if you have rented it out for a year. A 1031 exchange defers the taxation on the asset until the property at the end of the chain is ultimately sold. Here is a 1031 FAQ:https://www.1031exchange.com/faq/
Under prop 60, you can move your property tax basis to a new property if you have turned 55 as long as the new property is of equal or lesser value than the one sold. You have 3 years to move the tax basis.https://www.boe.ca.gov/proptaxes/prop60-90_55over.htm
SO, if you want to downsize, there are a number of things you can do. Just for example, you could buy a replacement, then rent your home out for a year, and then sell it. Take the 500k tax free, and 1031 exchange the rest into an investment (perhaps a 2nd home you mostly rent out?).
I am not an accountant or an attorney so you will want to double check these concepts yourself, but knowing these options are out there might get you thinking about where you want to go – if a big house is no longer where you want to be.