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.

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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Household Problems You Can Solve

There are problems around the house that you should certainly call a professional to fix, such as a leaking roof, but here are some solutions to common problems that you can fix on your own:

Problem:  Countertop scuff

You will need a crayon, a spatula knife, and a microwave-safe bowl.  Pick the crayon whose color comes closest to matching your countertop.  Peel off the paper, place it in the bowl and place in the microwave.  Pour the hot, melted crayon onto the scuff mark and work it into the indentation with the spatula knife.  Scrape off the excess with the spatula knife.  The crayon mixture will harden and dry quickly, erasing the countertop flaw.

Problem:  Loose cabinet hinge

You will need wooden matches, wood glue and a hammer.  Remove the cabinet hinge screw.  Dab wood glue on a match and stick it into the screw holes.  Tap it in with the hammer.  Break off the match part that is sticking out.  Let the glue dry for about four hours.  Twist the screw back into place.  The match piece will create a new solid base for the screw.

Problem:  Squeaky floor

You will need talcum powder.  Sprinkle the powder over the squeaky section and sweep it into the cracks.

Problem:  Stained bathtub

You will need cream of tartar, baking soda, lemon juice and a soft cloth.  Combine equal amounts of cream of tartar and baking soda with enough lemon juice to make a paste.  Rub the mixture into the stain with your fingers or a soft cloth.  Let it sit for a half hour, then rinse well with water.

Problem:  Drywall hole

You will need wire screen, a pencil, a joint knife, masking tape, sandpaper and drywall compound.  Cut the wire screen two inches larger than the hole.  Tie one end of the string to the pencil and thread the other end through the middle of the screen; bend the screen, and insert it and the pencil into the hole.  Pull the string until the screen is flat against the hole ( the pencil will help push the screen flat against the drywall) and hold it taut while you apply the drywall compound.  Tape the string to the wall to hold the screen in place as the compound dries.  Cut the string when dry.   Sand and smooth the compound with the joint knife.

Problem:  Torn window screen

You will need clear nail polish.  Slather the nail polish over the hole in the screen, both inside and outside.  Let it dry and no more bugs will sneak in.  (This is my favorite!)

Don’t List Your Home Until You Are Ready to Show It

I have noticed that many times in today’s market that a home is listed on the Multiple Listing Service (MLS), but the property cannot be shown until after the first brokers open house or cannot be shown until a week from the date the listing was submitted.  The reason for this delay is often due to fact that the owner needs time to prepare the house for sale.   I urge all home sellers to be ready to show their homes on the date they are listed.  The way our MLS works is that agents with buyers for a house like yours enter their search parameters into the MLS and the buyer may be put on an automatic e-mailing system; when a house that matches a buyer’s criteria is listed on the MLS, he will be automatically notified, many times immediately after the listing was entered.  In today’s market there is a shortage of homes on the market in the Palos Verdes area and in the other South Bay cities.  Buyers who are looking for a home like yours are anxious to see it when it comes on the market.  Being told they must wait “takes the wind out of their sails”.

I recommend being totally prepared to show your home the minute it is put on the market.  There are possibly a number of prospects waiting and I believe your chances of getting top dollar for your home may be better shown to those motivated buyers than waiting to show until after brokers, who may not have buyers for your home, are allowed to stream through it.  If you list your home a week or so before you are ready to show it, the wording, “Will not be listed in the Multiple Listing Service until…” can be added into the listing contract and a waiver filed with our local association of Realtors.

Quick Updates to Your Home

It happens to all homeowners.  Rooms that once looked fresh and contemporary have aged themselves into drabness.  For some it is an excuse to redecorate.  For others it is a chore.  Either way, homeownership is an ever-evolving process.  As one project ends, another peaks its head around the corner.

To bring your rooms current, as well as to update worn and disheveled items, consider these five room freshening tips:

1.  Paint: Paint is number one on the list because it is relatively cheap and easy to do yourself.  Getting a professional finish is simple, thanks to a myriad of products now on the market for the do-it-yourselfers.  From tape to edgers to color changing paint, you are sure to get a quality finished product.  “In” colors change every few years, so be sure to do some homework on what hues are in style.  While you are at it, research zero-voc  (volatile organic compound) paint before starting your project.  Traditional paint leaches fumes into your home for years.  Zero-voc paint, however, exposes you to fewer odors during the painting process and fewer risky fumes in the years to come.  This is well worth the effort of searching out zero-voc and the cost difference per gallon is minimal.  Paint does wonders for hiding dirt, wear, and tear.  Bring your home into the new decade with a fresh coat.

2.  Trim: The current trend for trim in the rooms of a house is to be white instead of natural wood.  It is contemporary and clean.  If your trim work is in good repair, simply puttying holes, sanding scuffs and painting can update the look.  Dated trim that is too thin for your large rooms can be replaced with new baseboards.  An amateur handyman can tackle this task with table and coping saws.  Trim is all about getting the angle out correctly.  If you already have current looking trim, upgrade your room with crown molding.

3.  Cabinet Hardware: From oil-rubbed bronze to beautiful vintage pieces, old is in.  Hardware can easily be added to any existing cabinetry or changed to bring a new feel to a tired room.  Shop your local home improvement stores, online and at local auctions to find the pieces that truly speak to you.

4.  Decorative Accents: Curtains are the frame to any well-designed room.  Choose colors and patterns that fit the scale of your room.  Heavy curtains made from chenille or jacquard work best in large rooms with tall ceilings.  Lighter weight fabrics, such as silk and chiffon, are great choices for small or airy rooms.  Decorative pillows and throws are also an inexpensive way to change the accents of your room.  Bright is in; do not be afraid to play with color.

5.  Flooring: While flooring is not a simple fix and may require the help of a professional, it can make all the difference in a dated room.  Scratched and worn wood floors should be sanded and refinished to show the natural beauty of the wood.  Laminate wood flooring is an inexpensive and easy solution for homeowners who want a clean and modern update.  I recommend that you do not over-do this type of flooring; it should be in a room or two but not the entire house.

If your rooms are looking tired, be sure to wake them up with a few new colors, paints or accents.

 

 

Boost Your Home’s Value: 4 Projects with the Greatest “Bang for Your Buck”

No matter if the housing market is up or down, you always want to ensure home remodeling projects are wise investments.  According to Remodeling Magazine’s Cost vs. Value Report 2011-2012, there are several home improvement projects that will provide significant enjoyment to you now and could recoup a majority of your dollars whenever you decide to sell.

Beautiful bathrooms:  According to the report, a mid-range bathroom remodel ($16,000) can recoup up to 62% of the investment when it is time to sell…and in the meantime, add significant enjoyment with a new, relaxing retreat.  To start determine which updates matter most and how much assistance you will need for each.

Complex projects, such as structural, electrical or plumbing changes or installing countertops or flooring, may be best left to the professionals.  However, there are many updates you can tackle yourself.  Painting is an easy and ideal do-it-yourself task that can make a large impact with minimal cost.  Similarly, installing new faucets, accessories and showerheads can be simple, even for a novice. 

Classy kitchen:  Once you have updated your bathrooms, the kitchen is a rewarding home renovation that when done moderately can recoup up to 72% of your investment.  Based on your budget, you will need to determine whether to update with a lower-cost laminate or a higher-priced option, such as granite or marble, that can offer an upscale look, added durability and functionality.

Lighting, while functional, also adds a significant style element to a kitchen.  Replacing fluorescent fixtures with recessed cans or pendants will add ambiance and luxury to your room.  Update your old appliances.  Add a splash of paint to the walls and trim for a polished look.  Finish off the counter area with a new high-end kitchen faucet.

Envious entry:  It is the first thing your guests and future home buyers see when they approach your home, so if your front door is not appealing or does not have significant features, it is time for an upgrade.  A new entry door adds instant curb appeal for a minimal price and can recoup up to 60% of your investment.

When choosing a new door, fiberglass options are an ideal choice.  The material resists denting and scratching, is easy to maintain and can make your home more energy efficient.

Wonderful windows:  Similar to the front door, replacing your existing windows with new vinyl windows will give your whole home a new look and feel, both inside and out, and payback of up to 68% of your investment.  As a larger-scale project, this is likely a project left for the professionals.

Look to your local window distributor to refer you to a reputable contractor to ensure your new windows are installed properly.  When it comes to selecting windows, vinyl is an all-around excellent choice.  Unlike wood, vinyl windows resist rotting and do not require repainting.  Unlike aluminum, vinyl windows will never pit or flake.  Plus, you can enjoy a pay off immediately with increased comfort and lower utility bills, while potentially adding significant resale value to your home in the future.