Your home sale could trigger capital gains taxes. Here’s how to calculate your bill

  • More home sellers now owe capital gains taxes after selling their primary residence, but it is possible to reduce the bill.
  • There are no taxes on the first $250,000 of profit if you are single, or $500,000 for married couples filing jointly, assuming you meet IRS rules.
  • You can lower profits above those thresholds by adding to your home’s “basis,” or original purchase price, with closing costs and eligible improvements.

There are strict IRS rules to qualify for the $250,000 or $500,000 exemptions. Any profit above those limits is subject to capital gains taxes, levied at 0%, 15% or 20%, based on your earnings.

“It is important to track your cost basis of the home,” which is your original purchase price plus closing costs from the purchase, according to Thomas Scanlon, a certified financial planner at Raymond James in Manchester, Connecticut.

You can reduce your home sale profit by adding often-forgotten costs and fees to your basis, which minimizes your capital gains tax liability.

For example, you can start by tacking on fees and closing costs from the purchase and sale of the home, according to the IRS. These may include:

  • Title fees
  • Charges for utility installation
  • Legal and recording fees
  • Surveys
  • Transfer taxes
  • Title insurance
  • Balances owed by the seller

These could be small amounts individually but have a significant effect on the basis when tallied.

The average closing cost nationwide is $4,243, according to a report from Assurance, but fees vary widely. In the priciest state, New York, the average is $8,039, while California is a close second at $8,028.

“You also get credit for the expenses for the sale of the property,” added Scanlon, who is also a certified public accountant. That includes your real estate commissions and closing costs.

However, there are some fees and closing costs you cannot add to your basis, such as home insurance premiums or rent or utilities paid before your closing date, according to the IRS.

Similarly, loan charges such as points, mortgage insurance premiums, the cost to pull your credit report or appraisals required by your lender will not count.

Original Article

Who is responsible for boundary fences and trees?

A: Most properties have three property lines setting the common boundaries with adjacent properties owned by others. A fourth property line usually sets the frontage on a public right of way, such as a street.

The location of the common property lines is typically represented by common boundary improvements such as shrubbery or trees. When setting up, maintaining or removing common boundary improvements, the
adjacent property owners’ rights depend on the type of improvement.

Common boundary improvements, other than trees, located on a property line between adjacent properties are called party walls. Types of party walls
include:

• boundary fences;
• driveways; and
• ditches.

Owners of adjoining properties are presumed to benefit equally from boundary fences. Under this legal presumption, all adjoining owners are equally responsible for constructing, maintaining and replacing
boundary fences.

The responsibility for constructing, maintaining or replacing boundary fences may be altered or removed only by:

• a written agreement between all affected owners; or
• an adjoining owner’s judicial petition to remove or alter their responsibility.

When trees mark a common boundary, each tree’s ownership is determined by the location of its trunk. Solely owned trees belong to the owner of the property on which the entire trunk is growing. Trees growing on government-owned parcels, such as a right of way for streets and sidewalks, belong to the local government, and thus the government is responsible for maintenance.

However, shrubbery or trees whose trunks stand partly on the land of two adjacent property owners belong to both adjacent owners. These trees are called line trees or common boundary trees.

Similar to maintaining a boundary fence, adjacent owners who own line trees are jointly responsible for maintaining the trees and, unless they agree to an alternate arrangement, share equal costs. To avoid disputes, adjacent property owners need to consider entering into an agreement detailing how they will handle the maintenance of boundary trees.

The Correct Price is the First Priority in Selling a Home  

Price is important, and it needs to be right from the first day.

When a home first comes on the market, it gets a lot of attention. If it’s priced right, it will get showings. But if it’s overpriced, buyers’ agents will skip over it – and may not even notice if the price is reduced later.

And, even if a buyer is found at a seriously inflated price, the sale could fail as a result of an appraisal.

That’s why it’s more important than ever to price a home right from the very start. As a listing agent, my job is to give you the most up to date information and recommend a price that will sell in today’s market – even if it isn’t what you want to hear.

If you’re ready to see what your home is worth in today’s market, get in touch. I’ll be happy to prepare a no-obligation market analysis to help you in making a decision about selling.

    If you have questions on this property or would like to see it let me know.
    Call me directly at 760.476.9560

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    Instant Offers and iBuyers

    With advances in technology and new ways to utilize data, some companies have sprouted up to create different ways to sell your property.

    Basically, they utilize automated valuation models (AVMs) to make quick offers on homes, allowing

    them to close in a much faster than typical timeframe, and then resell them.

    From a seller’s standpoint, it can eliminate some hassle and uncertainty, but with high “transaction fees” ranging from 7% to 14%, and the likelihood that they will sell the home for more than they paid you for it, you are simply exchanging that smooth and quick transaction for a portion of your equity.

    Companies that offer this kind of service are only in limited markets across the country right now. They operate by having homeowners fill out a short questionnaire with information on their home. They feed that data into their AVM, which kicks back an offer price. They make the homeowner a cash offer to close in a short timeframe (typically about a week) and specify what the fee will be to proceed through to closing. Once they own the home, they will repair and spruce it up, and list it for sale on the open market.

    It may be tempting to consider such an offer, but keep in mind that this is a straight numbers play. They are determining a price that allows them the room to cover the costs of the transactions as well as the repairs, while still making some profit. Their profit will either come from the fee you’ve paid or from acquiring your home at a below market price – although it could possibly be a combination of the two.

     n analysis on one company’s transactions showed they were selling homes at an average 5.5% appreciation, on top of their transaction fee. That’s a lot of money to leave on the table for a little convenience.

    There are other companies beginning to test alternative listing models as well, utilizing technology and AVMs to make ‘instant offers’ on homes, or to help buyers acquire and move into their next home before selling their current one. As always, it’s important to read the fine print and understand what you are agreeing to before using the service.

    Hi folks,
    If you are going to be selling your home in the near future or are just curious about its value in today’s market, give me a call or use the button below. I will email you a comprehensive market analysis of your home. There is no obligation on your part and it is totally free.

    My phone number is 760.476.9560.

    What is my Home Worth

    Not ready to move yet but want to keep an eye on your homes value, I have a monthly update that is customized to your home and neighborhood. Click the link below to see what is included in the report and to sign up:

    Monthly Update

    Pricing Your Home for Sale

    Because pricing your house correctly is so important, I promised to tell you all about what to avoid and how to get it right.

    First- what to avoid:

    • Advice from friends
    • Advice from real estate agents working in a different community
    • Zestimates

    And… please do ignore everything you hear about what your neighbor got for / paid for a house in your neighborhood last year – or even 3 months ago. Markets can and do change rapidly, so those prices have nothing to do with today’s prices.

    Your friends probably mean well, but unless they’re agents working in your neighborhood, the information they have will not be accurate. The same is true for real estate agents in other communities.

    National news reports national trends, but real estate is always local. Prices are affected by everything from neighboring business, to the jobs market, to the school district, to nearby zoning, to the price of utilities, to views, to access to transportation, and more.

    Two neighborhoods less than a mile apart can have very different values.

    What about Zestimates? Aren’t they accurate?

    No. They have the same problem. The computer program that generates those estimates can compare many things, but has no way to calculate the wide variety of details that affect price. Agents across the country have found that Zestimates can be as much as 30% off the mark – either way.

    How can you get it right?

    By hiring a real estate agent who is familiar with your neighborhood, and who will prepare a true market analysis, taking all factors into consideration. It’s much the same as a fee appraisal, because it is based on comparison to homes as much like yours as possible. It also takes current market conditions into account.

    If you’d like to know the current value of your home, get in touch. I’ll be happy to prepare a market analysis, so you know just where you stand.

    What is my Home Worth

    Zillow’s Zestimate; How accurate is it?  

    First of all, what is the Zestimate?

    Zillow is using an AVM ( Automated Valuation Model) to come up with your home’s value. AVM’s are a service that can provide real estate property valuations using mathematical modeling combined with a database. Most AVMs calculate a property’s value at a specific point in time by analyzing values of comparable properties. Some also take into account current asking prices, previous surveyor valuations, historical house price movements and user inputs (e.g. number of bedrooms, property improvements, etc.)

    An AVM typically includes:

    • An indicative market value (capital value or rental value) for a single residential property.
    • Information on the subject property and recent history of like properties.
    • Comparable sales analysis of like properties.
    • Current like properties being actively marketed.

    Besides Zillow, lenders, appraisers and mortgage investors use AVMs in risk management fields, estimating home equity, and quickly coming up with approximate property valuations in a portfolio. Fannie Mae now purchases qualified homes without an appraisal only using and AVM value.

    So how accurate are AVM’s and Zillow in particular?

    According to Zillows website here is how accurate their off market Value is:

    Active listings accuracy:

    Here are 3 recent sold properties with the sale price and the Zestimate:

    The Zestimate is off from 6 – 9%. Overvalued 2 properties and undervalued 1. According to Zillow itself, their off market valuation is significantly worse then the active listing valuation. That is because they get a lot of help from a real estate brokers listing price to dial in the value.

    I don’t doubt that AVM’s will get more accurate in the future, but for now, the Zestimate is only that, an estimate.

    If you are going to sell, get a professional Real Estate Brokers price opinion to dial in your homes value.

    What is my Home Worth

    Curious about your Home’s Value?

    Hi folks,
    If you are going to be selling your home in the near future or are just curious about its value in today’s market, give me a call or use the button below. I will email you a comprehensive market analysis of your home. There is no obligation on your part and it is totally free.

    My phone number is 760.476.9560.

    What is my Home Worth

    Not ready to move yet but want to keep an eye on your homes value, I have a monthly update that is customized to your home and neighborhood. Click the link below to see what is included in the report and to sign up:

    Monthly Update

    Am I personally liable if I default on my mortgage?

    A: The primary source of a mortgage lender’s recovery in the event the property owner defaults is the real estate held as collateral, not the owner personally.

    To satisfy an unpaid mortgage debt, the lender is forced to first sell the secured property by completing one of two types of foreclosure sales to satisfy the amounts owed:

    • a judicial foreclosure; or
    • a nonjudicial foreclosure.

    Occasionally, the fair market value (FMV) of the property is insufficient to satisfy the debt through bidding at the foreclosure sale. If the high bid is less than the debt owed on the mortgage, the lender suffers a loss, called a deficiency. However, to collect on a deficiency, the mortgage lender is very limited in California. The most common type of foreclosure action in California is nonjudicial. When a lender completes a nonjudicial foreclosure sale though a trustee’s sale, they are barred from recovering their loss on the mortgage, except for intentional waste to the secured property.

    Further, California has established anti-deficiency laws which bar lenders from collecting losses due to any type of foreclosure sale on a non-recourse debt, also called purchase-money debt.

    Nonrecourse debt includes:

    • Purchase-assist financing secured by a one-to-four unit residential property occupied by the buyer;
    • Carryback seller financing evidencing the installment sale of any type of property which becomes the sole security for the debt; and
    • Refinanced purchase-money mortgages, to the extent the funding is applied to discharge the purchase-money mortgage (including fees and costs associated with the refinance transaction).

    Every other type of mortgage is a recourse debt. The homeowner with a recourse mortgage is personally responsible for the payment of the debt. Recourse debt includes:

    Business-purpose mortgages secured by any type of property; and

    All mortgages secured by a:

    • Second home;
    • Property containing five or more residential units;
    • Commercial property; and
    • One-to-four unit, owner-occupied residence when the mortgage is a home equity line of credit (HELOC) to the extent funds were advanced for purposes other than the purchase, construction or remodel of the property.

    When a recourse second mortgage is wiped out by the foreclosure sale of a first mortgage holder, the wiped-out lender may pursue a money judgement against the property owner to recover the debt.

    The exception: mortgages insured by the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) are subject to government recovery of these unpaid mortgage debts and have recourse against the homeowner. However, the FHA and VA rarely pursue deficiency judgments, though they have legal authority to do so.

    What is a 1031 Exchange?

    A: An owner of real estate used in their trade or business or held for investment is not taxed on the profit they realize from the sale of the property when they purchase like-kind replacement property in an Internal Revenue Code (IRC) §1031 reinvestment plan, also called a §1031 transaction or exchange.

    Two classifications of real estate make up §1031 like kind property in reinvestment plans:
    • investment property, also labeled as capital assets; and
    • business-use property, which is property held for productive use in a trade or business.

    §1031 investment property includes:
    • residential and commercial (passive) rental real estate requiring active management;
    • investment (portfolio) real estate not requiring active management; and
    • vacation homes held for profit or resale.

    Business-use property is real estate used to house an owner’s trade or business and includes hotel or motel operations.

    However, before business-use property qualifies as like-kind property, it must be owned for at least one year before it is sold or exchanged. Business-use property is unlike investment property which has no holding period requirement before disposition.

    After one year of ownership, the business-use property may be sold and replaced in a §1031 reinvestment plan by purchasing either business-use property or investment property. Similarly, investment property may be sold and replaced by either business-use property or investment property in a §1031 reinvestment plan.

    Conversely, while a principal residence is a capital asset, it does not qualify as §1031 property since it is neither used in a business nor held for passive or portfolio investment purposes.

    Further, properties transferred — exchanged ––between related persons in a §1031 transaction must be held by both persons for a minimum of two years after acquisition.