Tax Implications When Selling a Home*

Home sellers used to be penalized when they sold a home, paying huge capital gains taxes on their next tax return. However,the United States government saw fit to change that taxation process with the Taxpayer Relief Act of 1997.  Now, many people qualify for no capital gains at all, depending on their income and tax situation. Take a look at some sample situations that can help you to avoid tax-related headaches and stay ahead of the financial curve. Single Owners – If you are a single homeowner, you are not required to pay capital gains unless the profit is higher than $250,000. You can figure out your profit by subtracting the sold price from the original price paid.  From that figure, you can also deduct any major household improvements made over the years, including an additional room or in-ground pool installation. For most homeowners, their profit is conservative, allowing them to pocket the money or put it toward a new property.  Married Homeowners – Because a home may be larger for a married couple, the government stipulates that up to $500,000 in profit is acceptable to avoid taxation. However, there is a significant tax rate when profits are above the $500,000 threshold.  In general, your tax rate is around 20 percent.  For example, your profit is $600,000. You need to pay a 20 percent tax on the $100,000 above the threshold. As a result,you owe $20,000 in taxes alone.  Time Constraints – You must pay capital gains only if you lived in the home for less than two years. For most homeowners, this time constraint is not applicable.  As long as you remain in a home as a primary residence, you can technically sell and buy a home every two years without paying capital gains.  For families trying to grow their family and wealth, this tax relief is a welcome sight. There is no limit to the amount of times you can buy or sell with no tax liability.  Special Circumstances – The government recognizes that there are extenuating circumstances that must be accounted for.  If you bought a house and were transferred to a different state by your employer within one year, for example, you are exempt from paying capital gains.  Other issues, including long-term government or private company duties, free you from paying taxes as well. Documented health problems, such as suffering from cancer, allow you to skip taxes if you must move before the two-year limit. If You Owe – It is best to contact a tax professional.  He can look over your personal situation to find out the tax cost.  In general, tax professionals take the sold price and reduce it with documented capital improvements and depreciation costs.  You can also deduct some of the closing costs to lower your tax liability.  However, high profits mean higher taxes overall.  Selling a home is much easier than it used to be. Go over your personal situation when considering selling prices. Receiving a conservative profit on your home is helpful when it comes to tax liability.

*I am a Realtor, not an accountant or attorney; this post is for informational purposes only and is not intended to replace your consulting with a tax professional.

How the Real Estate Business Works

I was recently working with a prospect who was looking for a lease property and that experience is what has prompted me to write this post.  I met this person and showed her some homes.  I had mentioned to her that the homes she was finding on other web sites came from our Multiple Listing Service and I would be able to show those properties.  She notified me about homes she found on one of the sites but when I looked them up, they were not listed.  I told her she would have to contact the owner or agent direct and I was kicking myself because I did not explain to her how our business works.

The Multiple Listing Service is not just a list of homes on the market.  When a property is listed for sale or lease, that listing agent is offering compensation to the cooperating agent.  If the commission is 6% the compensation to the cooperating agent is usually 3%.  If a property is not listed we cooperating agents are not entitled to a commission; therefore, we may be working for nothing, which, of course, agents cannot afford to do.

We have the capability of putting prospects on an auto-e-mail program that will notify them when new listings come on the market.  A person’s finding just the right property, I believe, is contingent upon working with an agent he trusts to keep him apprised of new or price-changed listings and to be there to show him the property.  That buyer’s agent will be working just for that buyer.  Look for an agent who is not only responsive, but also a good negotiator who is up on the latest legal requirements for real estate transactions cialis 20mg en ligne.  Ask the agent for recommendations from other satisfied buyers.  A listing agent who represents you as a buyer may have a conflict of interest, as he is also representing the seller.  Be sure to ask how he will handle the situation.  He will have to ask himself over and over, “Is this in the seller’s best interest; is this fair to the buyer?”

Good luck with your real estate purchase. and be sure to contact me if you need assistance.

90274 Zip Code Facts

The 90274 zip code includes the cities of Palos Verdes Estates, Rolling Hills Estates, Rolling Hills and the unincorporated area of Los Angeles County (Palos Verdes Peninsula).

There are 9437 households of which 87% are owner occupied;  71% are married; 35% have children.   The median home sales price is $1,225,000.  The median age of the inhabitants of this zip code is 31.88 years; 38% have a bachelor degree and 25% have graduate degrees.  83% are white collar workers, mostly in service industries and most commute by car thirty minutes to their places of work.

This information was obtained from the Realist tax portion of our Multiple Listing Service and though believed to be accurate, is not guaranteed.

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Secrets for Selling Your Home

Selling a house is a complicated process, no matter how good the real estate market is.  Whether you are a first-time seller or not, you will probably have a bunch of questions.  What is closing?  How much paperwork am I going to fill out?  How can I get the best price for my house?  How can I sell my house and buy a new one at the same time?

Secret #1: The kitchen comes first.  You are not actually selling your house; you are selling your kitchen-that is how important it is.  The benefits of remodeling your kitchen are endless and the best part of it is that you will probably get 85% of your money back.  It may be a few thousand dollars to replace counter-tops where a buyer may knock $10,000 off the asking price if your kitchen looks dated.  The fastest, most inexpensive kitchen updates include painting and new cabinet hardware.  Use neutral-colored paint so you can present buyers with a blank canvas where they can start envisioning their own style.  If you have a little money to spend, buy one fancy stainless steel appliance.  Why one?  Because when people see one high-end appliance, they think all the rest are expensive too and it updates the kitchen.

Secret#2: Take the home out of your house.  One of the most important things to do when selling your house is to de-personalize it.  The more personal belongings in your house, the less potential buyers can imagine themselves living there.  Get rid of at least a third of your things; put it in storage.  This includes family photos, memorabilia collections and personal keepsakes.  Consider hiring a home stager to maximize the full potential of your home.  Staging simply means arranging your furniture to best showcase the floor plan and maximize the use of space.

Secret #3: Audit your real estate professional’s online marketing.  92% of home buyers start their house hunt online, and they will never even get in the car to come see your home if the online listings are not compelling; compelling means pictures.  Listings with more than six pictures are twice as likely to be viewed by buyers as listing that had fewer than six photos.  Be sure to ask your agent to only include attractive pictures and this means no ugly pictures of the toilet with its seat up.

Secret#4: Renovate wisely.  The average remodeling payback in the past ten years has dropped from 82% in 2003 to 60.6% this year, according to Remodeling Magazine. Bringing up the rear are a dedicated home office and adding a sun room.  Topping the list are steel entry-door replacements followed by fiber-cement exterior siding.  Sellers routinely underestimate the positive impact of simple home improvements such as repainting and minor fix-ups.

Secret#5: Sweeten the deal.  Another way to make the home and deal more attractive to buyers is to offer things or terms that might sweeten the pot.  For example, sellers that offer the buyer a couple of thousand dollars credit toward closing costs, or a credit for the purchase of new flooring receive more attention from house hunters looking at similar homes.  In a down market buyers are looking for a deal, so do your best to make them feeling they are getting one.

Secret#6: Make all necessary repairs.  Even minor things, such as a leaky faucet or chipped paint on a baseboard, can suggest to buyers that you might not be maintaining the house well in other ways, too.

Secret#7: Focus on curb appeal.  First impressions matter.  A house with chipping paint, overgrown bushes and patchy grass will not make a good impression.  You may have to spend money to make the exterior of your house more appealing, but it is money well spent if it gets potential buyers in the door.  If your house is in good shape on the outside, buyers will see it as one less thing they have to spend money on once they move in.

 

New 1031 Exchange Filing Requirements for California

New §1031 Exchange Filing Requirements for California
There are new annual filing requirements for taxpayers who use Internal Revenue Code Section 1031 to defer gain or loss when selling California property.  Effective January 1, 2014, all taxpayers who defer gain or loss by selling California property and acquire like kind non-California property will have to file a new California information return to track their deferred California sourced gain or loss.  This return will generally be required to be filed annually until deferred California source gain is recognized.  The new form is currently being developed cialis andorre acheter.

This new law will help taxpayers and the Franchise Tax Board (FTB) to keep track of California sourced gain from an exchange.  After exchanging California property for property outside the State many taxpayers later sell said property and their previous deferred California sourced gain is not reported to California.

As an example, let’s say an investor exchanges out of a property in California and there was a gain of $50,000.  Investor then purchases property outside of California deferring the gain.  The investor must now annually report the gain of $50,000 on the new California 1031 information return and when the investor eventually sells the non-California property the investor will have to pay taxes to California.

This new law applies to all individuals, estates and trusts and all business entities regardless of their residency status or commercial domicile.  This new information return is due on the same date that their California return is due.  For those taxpayers who fail to file this new form, the FTB may issue a Notice of Proposed Assessment to adjust their income for the previously deferred gain plus penalties and interest.

 

Countdown to Home Buying

The market is improving; inventory is low.  Check this countdown list to make sure you are ready to purchase:

1.  Get Pre-approved.  You are pre-approved when your credit has been checked and confirmed and your income, assets and employment history have been verified.  Be careful; some so-called pre-approvals are not worth the paper they are written on.  I have received “pre-approval” letters from lenders and submitted them with offers to purchase only to find out later that the buyer was not able to obtain a loan.  Sometimes it is advantageous to work with loan officers at the bank with which you do business, as they have a vested interest in your continuing to do business with them.

2.  Temper your expectations.  Listing inventory in the Palos Verdes area and the entire South Bay is only 50% of what it was last year.  This means that if you want to stick to any sort of budget, you are not likely going to get everything you want or you will have to be patient.  Have a clear understanding of your needs, wants and wishes, so you will take action when the right home becomes available.

3.  Be ready to compete.  Unless you are willing to purchase a home an outlying area or in need of a lot of repairs, prepare yourself to make multiple offers and compete with other buyers in the market.

4.  Be prepared to act quickly.  When you find the home of your dreams, you need to be ready to rush to get it.  If you do not act quickly and start making preparations right away, you may find yourself left out in the cold when it comes time for your offer to be accepted.

5.  Watch your behavior at open houses.  Everything you do and say when in front of the listing agent (seller’s agent) or his representative will inevitably be shared with the seller and may come back to haunt you when your make an offer the purchase the home.  Both being too excited about the home or nit-picking the condition of the home can put you at a disadvantage at the negotiating table.

6.  Call your real estate agent.  Actually, this step should be first.  Contact me at 310-995-3754 or Katie@katiemuck.com as soon as you would like to begin the process!