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You are here: Home » 2016 » May

TAXABLE GAIN?

There is a big benefit to homeowners in our current tax code where you can sell a principal residence and avoid paying taxes on up to $250,000 of gain if you are single, and up to $500,000 in gain if you are married, as long as you’ve lived there at least two out of the last five years. But what happens if you have to move prior to the two-year period? The good news is your home is probably worth a lot more than what you paid. The bad news is you may be subject to capital gains taxes!

 

Whether you owe the taxes or not will depend on your reason for selling. If you are moving just to get a bigger/smaller/newer/better home, you’ll probably owe taxes. However, if you are selling because of a change in employment, divorce, or another IRS “safe-haven,” you might qualify to avoid some or all of any capital gains taxes owed.

 

If you don’t meet one of these safe-havens, don’t despair. Talk with your tax expert and find out how much it will be. The tax hit may be less than you think. If you bought a home for $400K and it’s now worth $500K, it looks like $100K in gain. However, you can deduct some closing costs on the purchase and the sale transactions, along with hard improvements. Some of my clients opt to make the move and just pay the tax because the benefits of moving outweigh the taxes owed. But many other times they find that if they just delay selling their home a few months (in order to meet the two-year period) it saves them thousands of dollars.

 

My point is to only make your decision to sell or not sell once you have all the facts. I’m not a tax expert, so check with your tax professional.

BI-WEEKLY MORTGAGES

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You may have seen ads that say, “Pay off your mortgage years early!” These are usually ads for companies promoting a bi-weekly mortgage program.

 

There is no “magic” here, it’s just simple math. Normally you make 12 payments per year to your lender. In a bi-weekly plan, you pay half of your normal payment every two weeks. There are 52 weeks, so that’s 26 half payments, which means you are paying the equivalent of 13 payments each year. The extra goes to reduce your principal (some lenders require you to tell them to apply it to the principal or they’ll hold it in a “suspense” account). The company will charge you several hundred dollars to administer it for you, but you save thousands in interest.

 

Most financial “experts” are against signing up for these programs. They say you should just do it yourself and save the money. I agree with that in principle, but that argument only makes sense if you actually have the discipline to DO IT in order to get the savings. Their other argument is that by doing it yourself you free yourself from the obligation to do it contractually. This means if you come up short due to unexpected expenses some month, you can just skip it that month, and that does sound like sage advice to me.

 

But several bi-weekly companies just made the news recently when it was found that they were collecting payments from their members but then NOT sending them in early. They would sit on the funds and collect interest, then send the whole payment in just before the due date. So they were collecting the admin fee AND extra interest (called “float”) but the customers weren’t benefitting as much as they should have. So if you want to pay extra to your mortgage, just do it yourself.

SAFETY ALERT

I wanted to bring some situations to your attention to protect yourself if you are in the real estate market. It seems like the “bad guys” are targeting homes for sale as likely targets for theft.

 

One agent had their credit card stolen from their purse at an open house. At another open house, we found a bathroom medicine cabinet open after a group of people finished viewing the home who kept separating while viewing the house and peppering our agent with odd questions.

 

In addition, I’ve had two incidents the last few months that were somewhat similar that happened right before close of escrow. Not sure if this is a new trend, or just a coincidence. In both cases they targeted homes and/or moving vehicles right around the time the seller was moving out. I am guessing they are watching homes that are about to close escrow and they are figuring out the window of time between when the seller is mostly moved out but the new buyer hasn’t moved in yet. In one case they stole a moving truck full of belongings, in the other they broke into the house and stole items.

 

So here are my suggestions: Keep some lights on inside and out. Turn a clock radio on so there is noise. Leave an inexpensive TV on in a bedroom so the glow is visible from the street. Preferably plug all these into timers so they go on and off. The point is to make the home look occupied. You can consider parking a car in the driveway, but that bears it’s own risks, of course, if they steal the car!

 

You should also take your more valuable belongings on your FIRST trip out of the house. If you are going to vacate the home but leave some belongings behind for another trip, don’t leave anything uber-expensive or dear to you.

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