Archive for the ‘Home Sellers’ Category

How Can I Avoid Paying Capital Gains Tax When Selling My Home?

Nobody likes paying more taxes, so how can you avoid paying capital gains tax when selling your home? If you are married, and file a joint income tax return, you may exclude up to $500,000 ($250,000 for single people) on any GAIN you make on the sale of your main residence. There are some basic rules (conditions) which must be met, the most important is that you must have owned and lived in the house for two out of the last five years before the sale. This is referred to as the “ownership and use” test. The IRS may check many different sources to verify this, from DMV records, income tax filings, where you work, to names & addresses on utility bills.

At first glance, this seems unfair — especially to a person who has lived in their principal house for many years and then the spouse dies. There are, however, two tax breaks available.

avoid paying capital gains tax when selling san diego homeFirstly, according to the IRS, “if you sell your home after your spouse dies (within 2 years after your spouse dies), and you have not remarried as of the sale date, you can count any time when your spouse owned the home as time you owned it, and any time when the home was your spouse’s residence as time when it was your residence.” (IRS Publication 523, Selling Your Home). In other words, the surviving spouse can claim the up-to-$500,000 exclusion of gain if the house is sold within two years from the date of death, and it is not necessary to file a joint tax return.
Let’s assume for this discussion that the couple purchased their home many years ago for $50,000, and when the husband died, it was worth $750,000. Let’s further assume no capital improvements (renovations) which would have increased the tax basis. In our example, if within two years from death, the spouse sells for $750,000, the gain is $700,000. The spouse can exclude $500,000 of the gain. But $200,000 of gain still has to be accounted for.

Then we go to the second tax break: called “Stepped Up Basis“.

Basically, the value of the house on the date of death becomes the basis of the person who inherits from the deceased. In effect, the basis is “stepped up”.

Let’s go back to our example. The basis of the surviving spouse in the house is $25,000 (half of the purchase price). When one spouse died, the survivor inherited his/her basis as of the date of death, which was $375,000 (half of $750,000). Thus, for tax purposes, the surviving spouse’s basis is now $400,000 (the original $25,000 basis plus the inherited basis of $375,000).

If we continue to do the math, when the house is sold for $750,000, the capital gain — i.e., profit — is only $350,000 ($750,000 – 400,000). If the house is sold within two years from the day the spouse died, the surviving spouse can exclude all of the gain and pay no tax.

However, if the house is sold after the two years, the gain is $100,000 more than the $250,000 ceiling authorized by Congress, and the survivor will have to pay capital gains tax on the $100,000. Clearly, while the IRS will get some money, the stepped-up basis does reduce the pain.

Since the gain is over $250,000, it is important to include all capital improvements which the owners made to the house over the many years. This is where saving receipts and documentation comes in handy. Any such improvements are additions to basis, and thus would reduce the profit. Hopefully, in this situation, it can be reduced sufficiently so that the gain falls under the $250,000 cap.

Before you consider selling, you must review your specific situation with your tax professional. Clearly, you want to pocket as much of your well-deserved equity as possible.

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How Is Selling A Condo Different Than Selling A Home?

Listing and selling a property is a delicate dance. From the initial marketing to the final price negotiations, everything needs to be customized to the type of property being sold. However, because of their main differences, this process can look very different when selling a condo versus selling a house.

Reason #1: The Homeowners Association or HOAhoa with condos

Almost all condos come with some type of HOA, or homeowners association. The HOA generally handles common areas like swimming pools, the exterior of the building, and landscaping. They may also hold various social events throughout the year. They also normally pay limited insurance and have specific community rules.

However, all of this comes at a cost. HOA’s charge their residents a monthly, quarterly, or yearly fee to be a part of this “community.” This allows them to provide various amenities for their residents, while providing maintenance and repairs for the property.

When selling a condo, smart buyers will balance the costs of each HOA with the benefits.

Reason #2: Real Estate Investors

When selling a condo, it’s reasonable to expect a larger number of investors considering the property, than when selling a single family home. After all, renting out condos is a big business.

As a result, selling a condo could mean a faster closing, a cash offer, or even competing bids for the most desirable units.

selling-a-home-vs-a-condoReason #3: The Type of Buyer

Different types of buyers look at a condo versus a home. For starters, condos are generally smaller, don’t have much (if any) yard, have all landscaping handled professionally, and frequently come with amenities like a swimming pool or fitness center.

Many potential buyers with children would love a swimming pool with zero maintenance, they aren’t willing to make the trade for a smaller living area. This means that when selling a condo, potential buyers will generally be single adults, newly married couples, or retired professionals looking to downgrade to an easier property.

Reason #4: Location, Location, Location

The one factor above all others is most important when selling a property: location. Being close to town versus far away from traffic, near downtown excitement versus in a quiet neighborhood, or near shopping centers versus on the edge of nowhere all come into play for a property’s value and desirability.

Generally speaking, condos tend to be closer to urban areas, shopping, and entertainment. This also means that their price per square foot is normally higher. As a result, owners looking to sell their condo should carefully consult with their real estate agent about the best way to market their property and a fair listing price.

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Your 4 Best Remodeling Projects To Add Value

If you are thinking about selling your home or just giving it a fresh update, don’t think about what is “trendy,” but rather more “classic,” when it comes to remodeling. These four classic remodeling projects will add value to your home and give you a great return on your investment.

Front Door Revampfront door for classic remodeling

If you don’t use your front door often, you may not notice that it needs some attention. Your front door is like the cover of a book – it gives a good idea of what may be inside. If your front door is difficult to open, squeaks, or looks significantly dated, it may not yield a positive first impression. If your front door isn’t in need of replacing, clean the entire entryway, give the door a fresh coat of paint, and replace the door handle. This easy and simple update will give you a huge 75% return on investment.

Window Replacement

Potential buyers are interested in the look of your windows and their functionality. If your windows are the older single pane type, it’s time to replace them. Buyers love new windows that will lower their electric bill. New windows are a high selling point for many homes. Replacing your windows will give you a 72% return on your investment

Closet Organization

closet organizer idea for classic remodelingA cluttered closet is the last thing a potential buyer wants to see. Lots of storage is very important for most homebuyers. If your home has small closets or very few storage places, make the space more efficient with closet organizers. This easy remodel will help the functionality of the closet and will appeal more to homebuyers looking for more storage. Even if you aren’t selling your home, the closet organization may save you time when looking for items you need.

Increase Lighting

Buyers want to see light and bright rooms. If your home lacks sufficient lighting, it may be time to replace bulbs or replace lighting fixtures. Add recessed lighting to your living room or kitchen to brighten the rooms up. Open the curtains and try getting in the habit of leaving them open to let more natural light in. If necessary, replace your window treatments to give your home a lighter look and feel.

These four classic remodeling projects are something you should consider doing, regardless if you are staying in your home or selling it. Even if you aren’t placing your home on the market now, that doesn’t mean that in the future your decision might change. These projects are simple, cost-efficient and will give you a significant return on your investment.

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Do You Need A Home Warranty?

When buying a home, even if it isn’t brand new, there is a good chance that you will be offered, or even given a home warranty. The seller may offer to purchase one for you to provide peace of mind that if most any component of the home fails, it will be fixed. Most good real estate agents will make sure a buyer is covered with a home warranty for 1-year after closing. Why? It reduces liability to the home seller and listing agent should something go wrong after the sale.

A home warranty is a contract between a homeowner and a home warranty company. It provides a discounted repair and replacement service on a home’s major components, such as the furnace, plumbing and electrical system. Home warranties also have optional upgrades, which may also cover  washers and dryers, refrigerators and swimming pools. Most plans have a basic component that provides all homeowners who purchase a policy with certain coverages. Homeowners can also purchase one or more optional components that provide additional coverage at additional cost.why do you need a home warranty?

Home warranty companies have agreements with approved service providers. When something that is covered by a home warranty breaks down, the homeowner calls the home warranty company, and the home warranty company sends one of its service providers to examine the problem. If the provider determines that the needed repair or replacement is covered by the warranty, they complete the work.

I sold a gal a condo last year. It was built in 1974. It has been “flipped” by an investor, so many components of the unit were brand new-from the appliances, to the cabinets, carpet, paint, faucets, etc.  We had it thoroughly inspected by a qualified home inspector. While he found some issues, nothing was major. Unfortunately for my client, after moving in, she started noticing water on the floor that turned out to be a slab leak (this is a leaky water pipe in the concrete floor). Lucky for her, she didn’t install her new bamboo flooring yet.

So who pays in a situation like this? The HOA is off the hook and so is the seller. This issue most likely arose after she moved in and there isn’t much way the seller knew about anything like this beforehand. Luckily for my buyer, she had a 1-year home warranty that covered this problem!

What Does It Cost?
In addition to an annual premium of $300-500, most warranties charge a service call fee (also called a trade call fee) of around $60 every time the warranty holder requests that a service provider come out to the house to examine a problem. If the problem requires more than one type of contractor to visit (e.g., a plumber and an electrician), the homeowner may have to pay the service fee for each contractor.

Having a home warranty doesn’t mean the homeowner will never have to spend a penny on home repairs. Some problems won’t be covered by the warranty, whether because the homeowner didn’t purchase coverage for that item or because the warranty company doesn’t offer coverage for that item. Also, home warranties usually don’t cover components that haven’t been properly maintained. Furthermore, if the warranty company denies a claim (which they’ve been known to do!), the homeowner will still have to pay the service fee and will also be responsible for repair costs.

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A Word About Protection For Home Sellers

Attention home sellers! If  you see someone walking around outside and looking at your home, that doesn’t necessarily mean they are interested in buying it. They may even knock on the door and ask for a tour. Again, that doesn’t necessarily mean they are interested in buying the place.

There are all sorts of reasons someone might want to get into your house or take a closer look at the outside of it. It’s surprising at how a for sale sign will embolden some folks, and how they can cause homeowners to suddenly trust everyone who givens the house a second glance.Protect your home from thieves when selling

It’s recommended home sellers always remove valuables and sentimental items before showing their home or holding an open house. Valuables should include prescription drugs and personalized paper products.

After a property showing or open house, doing a quick check of everything is a great idea. Be sure nothing is missing or out of place. Make sure that all access points are locked and secure. Someone could unlock a door or window and come back when people are not likely to be around.

Do NOT let anyone in your home without a confirmed appointment. Protect yourself. If someone knocks on your door and wants to see your house, direct them to your agent.


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Pricing Your Home To Sell

Finding out what your home is truly worth can be tricky — but pricing it right can make a big difference in how quickly you are able to sell your home. When you are trying bring potential buyers to your home, pricing and packaging are more important. Depending on your mortgage situation and your unique home, you can get your home set apart in a positive way. The tips below to help you find the optimal price to sell your home quickly, and for the most money.

Research the Area

Of course, you don’t just pick an asking price out of thin air. Doing your homework will help you discover what your home is actually worth. A real estate appraiser or Realtor can help you with a comparative market analysis (CMA) to see what sellers near you are getting for their homes. A professional appraisal averages $400, while a Realtor’s CMA is free (and likely the best starting point). It’s easy to get some information on your own with the help of sites like Zillow and It’s important to factor in your unique situation (like how soon you want or need to sell) as well as a realistic price range for your neighborhood.

pricing your home to sellLeave Room for Negotiation — But Don’t Overreach

Now that you have found a price good range or target number in mind, you can think about what price will motivate buyers. Of course, you don’t want to sell for less than your home is worth, but at the same time, no buyer wants to overpay. It’s a good idea for your price to give yourself some negotiating room. If you price it too high, you risk the house not selling, and if it’s too low, you risk leaving money on the table.

Think Like a Buyer

One of the best ways to succeed as a seller is to consider what a buyer may be thinking. In addition to understanding the market and knowing market prices, along with the time of year. Spring and summer are hot seasons for the housing market because people with children want to be moved in before the start of the school year. It’s also a good idea to stay informed about current interest rates, which can have a big impact on how many potential buyers are out and their buying power. You can also think about what you value in your home like the great neighborhood, large yard, or layout. Buyers likely value similar things , and can help highlight your home’s best assets.

When you are putting your home up for sale, try to keep your emotions in check. Let the facts — and real estate experts — guide your decisions.


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