10 Tax Facts To Know If You Sell Your Home
If you haven’t sold a home for a while, the tax rules have changed significantly from what they used to be. The old rules were, in order to avoid paying capital gains taxes, that you had to buy a replacement home for at least as much money as what you sold your home for. That was great if you wanted to “move up”. But if you wanted to downsize or simply moved to a less expensive area, you could have to pay taxes on at least some of the gain.
Here is a quick overview of the current rules on the taxability of capital gains on the sale of a primary residence.
- If you have a capital gain on the sale of your primary residence, you may be able to exclude some or all of the gain from taxes. This rule may apply if you owned and used it as your main home for at least 2 of the last 5 years before the date of the sale.
- There are some exceptions to the ownership and use rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military, and certain government and Peace Corps workers. For details, see IRS Publication 523, Selling Your Home.
- If you are single, you can exclude up to $250,000 of the gain. The limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
- If the gain is not taxable, you may not need to report it to the IRS on your tax return.
- You must report the sale on your tax return if you can’t exclude all or part of the gain. And you must report the sale if you choose not to claim the exclusion (though why you would want to do that is beyond me!). That’s also true if you receive a 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the “Questions and Answers on the Net Investment Income” on IRS.gov
- Generally you can exclude the gain on the sale of your main home only once every 2 years.
- If you own more than 1 home, you may only exclude the gain on the sale of your main home. Your main home is usually the one that you live in most of the time.
- If you claimed the first-time home buyer credit when you bought your home, special rules apply to the sale. For more on those rules, see Publication 523.
- If you sell your main home at a loss, you can’t deduct it.
- After you sell your home and move, be sure to give your new address to the IRS. You can send the IRS a completed Form 8822, Change of Address to do this
Questions To Ask Yourself If You Are Thinking Of Selling
“For Sale By Owner”
Many sellers consider selling their homes without using a real estate agent. After all, with the prices of homes in the Bay Area, wouldn’t it be nice to put that 4-6% commission in your pocket instead? I used to think that too – until I became a REALTOR®. Selling real estate (especially in the state of California) has become much more complex in the last 10 years.
There is no right or wrong answer. However, here are some questions to ask yourself if you are thinking of selling “For Sale By Owner”
- Do you have access to accurate data regarding selling prices, square footage, floor plans, and amenities of other homes that have sold in your surrounding are in the last 6 months? Sure, you can get some information off of Zillow or Trulia, but beware – the information isn’t always accurate.
- Do you know how to price your home? Pricing correctly is critical to a sale – even in some of the hot markets in the Bay Area.
- Do you know how long it has been taking to sell a home in your area?
- Will you be available to answer phone calls and emails, and to show your home to prospective buyers? If you are working, will you be able to take time off to show your home, or will you only be able to show it in the evenings and weekends – when you and your family want to be relaxing?
- Do you have a plan to market your home so people know it’s for sale? It can take hours to put ads on Zillow, Trulia, Craigslist, etc.
- Can you handle criticism if negative comments are made about your home?
- Will you be able to screen prospects to make sure they are qualified (or worse yet, thieves)?
- Are you able to negotiate the highest sale price and/or best terms – either on the phone or face-to-face?
- If there is a disagreement along the way, can you remain calm and work things out?
- Do you have access to purchase contracts and required state and local disclosures? Do you know what the mandated disclosures are?
- Do you know how to obtain title insurance, deeds, and any other legal documents needed to transfer ownership?
- Will you be available to meet appraisers, inspectors, and contractors during the process?
- Do you understand all the fees you will be charged at closing and exactly how much you will end up with?
Pricing Your Home
Part Art, Part Science – All About Knowing The Market
Pricing a home correctly is critical to getting it sold in a reasonable amount of time. Price it too high, and buyers will pass it by. Even in today’s market where inventory is very tight, in some “hot” areas, if you price a home at what appears to be “market price”, it will linger on the market. In that same area, a similar house priced slightly below market will fetch multiple offers and sell for more than what yours is listed for. Go Figure! Sometimes I just scratch my head at the whims of the market.
When pricing your home, many factors should be considered. I start with a comparative market analysis of what other nearby properties have sold for in the last 6 months. It’s important to compare the amenities and condition of your home to those that have recently sold. It’s also wise to look at what the listing price was, what the final selling price was, whether there were any price reductions, and how many days properties were on the market.
Many sellers choose an agent because the agent says they can get a high price for it – even though the agent knows full well that they won’t really be able to get that price. But, hey, it’s all about getting the listing right? Wrong! A good agent will be honest with you – even if it’s not what you really want to hear.
Sellers are also sometimes reluctant price their home slightly lower than what it appears the market price might be. They worry that they might be leaving money on the table. In my experience, that is not the case. Pricing slightly below market generates a lot of interest and multiple offers, and often results in a higher price.
Pricing above market means some potential buyers won’t even bother to look at the house. My experience has been that pricing too high also means the house will stay on the market longer, and will likely generate some “lowball” offers.
So – when it comes to pricing your home for sale, have a good discussion with your agent about pricing strategy, and listen to what your agent tells you about your local market. Your agent may also have some suggestions for some relatively inexpensive things you can do to your home to increase its appeal and value.
Preparing your home for sale is an important step. You want your house to appeal to as many buyers as possible. As an Accredited Staging Professional® Real Estate Agent, I provide a trained and objective eye to help you do that.
What do you need to do to prepare your home for sale? Do you need to paint it? What repairs or improvements will give you the most “bang for the buck”? Does it need to be professionally staged?
Preparing Your Home For Sale – Where to Start
Preparing your home for sale is important. You want your home to make a terrific first impression on potential buyers. Here are some tips to get you started:
CLEAN! This is one of the most important things. Clean all the little nooks and crannies – along baseboards, grout in bathubs, windows – everywhere!
Declutter – start your packing early. Remove anything that you won’t need in the next 3-6 months – including clothing. The less of your stuff there is, the more spacious your home looks.
Pack away your valuables! Remember, you will have strangers coming to look at your house, and some of them may be, shall we say, “less than honest”. Anything that has sentimental value should also be packed away.
De-personalize. Take down all of your family photos. Replace them with generic pictures. Take your kid’s artwork off the refrigerator. Put your household calendar out of sight. Remember – this is a safety measure. The less a stranger can figure out about you and your family, the better.
Get rid of any unnecessary furniture. Sell it, give it away, or store it. Again, you want your home to feel spacious, so less is better.
Paint if needed. When you take photos down, you may find that the paint on the wall has faded. You may also find that the walls (especially corners in the hallway and doorways to kids’ rooms) have taken some wear and tear. Paint is relatively easy and inexpensive
Have carpets cleaned. If needed, consider replacing them. Also, if hardwood floors are worn and scratched, consider refinishing them. At the very least vacuum and mop.
Fix leaks! This is one of those minor things that buyers tend to notice, and it really bugs them. Replace faucets if necessary.
Freshen up your home’s “curb appeal”. Make sure bushes, trees and plants are neatly trimmed, and grass is mowed. Consider putting in some flowering plants (even fake ones are good). Sweep sidewalks, decks and patios.
If you have a pet, you will need to make an extra effort to make sure there are no messes around food dishes, litter boxes, pet beds, etc. If you have a dog, make sure you clean up poop in the yard.
I’m an Accredited Staging Professional® Real Estate Agent. If you list your home with me, I will prepare a customized report for you detailing the things you should do to prepare your home. That’s a $300 value – FREE!
Your Home Wish List
Deciding What You Want
Thinking about the features of a home that are important to you BEFORE you start looking will shorten the process, and keep you focused on those homes that are really possibilities for you. You need to think about the location, the neighborhood, the schools, number of bedrooms and bathrooms, condo or single family home.
When you start this exercise, think about your current lifestyle and what your future plans are. If you have children or plan to have them, schools may be important. If you are a busy professional who doesn’t like doing yard work, a condo might be a better choice than a single family home.
All of this will help your REALTOR® to find homes that are good possibilities for you. Keep in mind that you will probably not find a home that meets all of your criteria, so you may have to make some comprises. Prioritizing your preferences will help you make a decision.
Download this handy checklist to start your wish list: Your Property Wish List
One of the most important things you can do before you put your house on the market is to de-clutter and clean – in other words: Get Your House In Order!
We have had a pretty good seller’s market for a while, but there are signs that things may be slowly changing. Since the beginning of the year, the number of new listings has outpaced closed sales by at least 400 units. There’s still only about 3 months of inventory (6 months is considered “normal”), but buyers have more choices now.
So what can you do to prepare your house for sale? First and foremost is to de-clutter. Most of us have way too much “stuff”. Too much stuff in a room makes it seem much smaller than it is. So start packing your stuff up early. You’re going to have to pack when you move, so why not get a head start?
Another reason to start packing some of your personal stuff – SECURITY! Keep in mind that you will have lots of strangers traipsing through your house. You don’t want them to know anymore about your family than necessary. Got a collection of figurines or bobbleheads that you absolutely love? Someone else might too, so PACK IT UP. Love to display your kid’s art projects on the refrigerator or have wall hangings in their rooms with their names? Guess what – now a stranger knows what your kids’ names are. TAKE THEM DOWN!
As far as cleaning goes – go into each room and look at it as if it was somebody’s house. We usually notice other people’s dirt much more than our own. Get the dust rag out and go to town. Clean all the nooks and crannies in the bathrooms and kitchen, clean the baseboards, dust the ceiling fans, wipe the fingerprints around the light switches and on doors.
Decluttering and cleaning are relatively easy and cheap, but can make a big difference in potential buyers’ perception of your house.
Some good news for buyers in Santa Clara County – the inventory of homes for sale is rising! That means there are more choices, and a greater possibility of getting your offer accepted. Not that there isn’t still competition. Some properties, especially in areas with good schools, are still receiving multiple offers. But inventory levels are the highest they have been since January 2012.
If you are thinking about buying a house, now might be a perfect time. Interest rates are still low. Lenders have eased up on some of their guidelines, so loans are somewhat easier to get than a couple years ago. And rents in the Bay Area have risen sharply in the last year. If you or someone you know is interested in finding out more about buying a home, I’d love to talk with you. Call me today!
Months of Inventory-Last 3 years
Investing in real estate can be very profitable, but there are also risks involved, especially in the fix-and-flip projects. As we have seen in the last 5 years or so, a local market can change dramatically in a short period of time, sometimes without warning. If you happen to hit a dip in the market when you put your completed project back on the market, you might not make as much profit as you need/want.
So what can you do to mitigate the market risk? One thing you can do is have multiple exit strategies before you start the project, and factor that into the analysis. If the property doesn’t sell for the price you need, can you rent it out for 6 months to a year? You need to know what the average rents are in the area, what your loan servicing costs (if you have loan) will be, and what your carrying costs are going to be. Make sure you have enough cash reserves to make up any shortfall for a period of time.
Sometimes a drop in the market can turn out to be an okay thing. Way back in 2008 we bought a fixer upper triplex in Stockton to do a fix and flip. We got it for a good price. Renovations cost a bit more and the project took longer than expected, and this was towards the beginning of the big drop in real estate. By the time the property was ready to go back on the market, we couldn’t even get our money back out of it. So we decided to rent it instead. We found a good property manager who found good tenants, and the property cash flows nicely. We still own it today. We’ve actually made more money off it by renting it than what we had planned on making if we resold it right away.
Do you really need a REALTOR® when you buy and sell a home? Maybe not 20 years ago, but in today’s legal environment in CA, it’s probably wise to have an expert help you through the process.
Selling a home is not as easy as it might seem on the surface. It takes a lot of time to determine the best listing price, do the advertising, hold open houses, review offers, meet inspectors & appraisers, coordinate with the buyer, buyer’s agent, and escrow agent, and do all of the paperwork that is required. As a professional REALTOR®, I take care of the hundreds of details involved in selling your home so you can continue to live your life. And I stay current on market conditions, new laws (especially regarding disclosures), and the latest tools to get the widest exposure for you home to potential buyers.
So, here are the Top 5 Reasons You Need A REALTOR
- A real estate transaction is complicated. There are disclosures, inspections, mortgage documents, deeds, insurance policies, and the list goes on. As a seller, do you know what information you are required by law to disclose to potential buyers? A knowledgeable guide can help you avoid delays and costly mistakes.
- Selling a home is time consuming. There are a million little details that need to be taken care of, from scheduling inspections and meeting inspectors, to holding open houses, and delivering keys. A good REALTOR® will take care of those details for you so your life is not completely disrupted.
- Real Estate has it’s own language. Do you know what a PUD, HOA, HUD, GFE or a CMA is? It’s important to work with someone who speaks that language.
- REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years between each purchase. And laws and regulations change all the time. If you fail to provide a required disclosure, the buyer could come back and sue you years after the transaction has closed.
- REALTORS® provide objectivity. Since selling a home is often an emotional undertaking, having a concerned, but objective third party helps you keep focused on both the business and emotional issues most important to you.
Also, make sure your agent is a REALTOR®, not just a real estate agent. REALTORS® are members of the NATIONAL ASSOCIATION OF REALTORS, a trade organization of more than 1 million members nationwide. REALTORS® subscribe to a stringent code of ethics that helps guarantee the highest level of service and integrity.