Crying Uncle or Uncle Sam?
On Capital Gains
When you bought your home, that cost is your initial basis plus any closing costs that the IRS will consider as the baseline figure when you sell your home. This figure may be different if you receive the property as a gift or if you build it new. California’s community property laws also play a role here too. Here are some of the factors that can raise your Basis and add value to your home. So long as you keep records the prove these factors, then you will have a new “Adjusted Basis” that should be higher than your purchase price thereby excluding more gains from tax obligations
Passing Properties From Parents to Kids: What are Propositions 58 and 193?
Proposition 58 provides for an exclusion from reassessment real property transfers between parents and children. Proposition 193 expands this tax relief to include certain transfers from grandparents to their grandchildren (transfers from grandchildren to grandparents are not eligible). Specific requirements must be met.
Reference: Section 2(h) of Article XIII A of the California Constitution and section 63.1 of the Revenue and Taxation Code.
YOUR TAX CONSEQUENCES
According to the IRS, “improvements” are those that add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your property.
Repairs, on the other hand, are distinct from “improvements,” and are therefore ineligible from being counted as such as a general matter unless these items are otherwise done as part of an extensive remodeling or restoration of your home. The IRS reasons that maintaining a home does not add to its value or prolong its life. Regardless, you’re not allowed to add their cost to the adjusted basis .
Uncle Sam and Your Home Sale: Tax Consequences
From the Horse’s Mouth: The IRS
- Selling Your Home (from the IRS)
- Capital Gains and You (from the IRS)
For Your Own Home: Seller Expenses Impacting Adjusted Basis
Items that may be considered to lower your gains liability include:
- Commissions paid
- Advertising expenses
- Legal fees
- Loan points sellers pay (as a concession)
Eligible Improvements
The following list is contains examples of improvements (eligible):
- Additions and other improvements that have a useful life of more than 1 year.
- Amounts you spent after a casualty to restore damaged property
- Additions: Bedroom, Bathroom, Deck, Garage, Porch, Patio
- Outdoor areas: Lawn & Grounds, Landscaping, Driveway, Walkway, Fence, Retaining wall, Sprinkler system, Swimming pool
- Miscellaneous: Storm windows, doors, new roof, Central vacuum, wiring upgrades, Satellite dish, Security system
- Heating & Air Conditioning: Heating system, Central air conditioning, Furnace, Duct work, Central humidifier, and Filtration system
- Plumbing: Septic system, water heater, Soft water system, Filtration system
- Interior Improvements like adding built-in appliances; kitchen modernization Flooring, Wall-to-wall carpeting, Insulation, Attic, Walls, Floors, Pipes and duct work
Ineligible Repairs
The following list is contains examples of repairs (ineligible):
- Repainting your house inside or outside
- Fixing your gutters or floors
- Repairing leaks or plastering, and;
- Replacing broken window panes
Inheriting Property: The Knowhow You Need
Things are different if you inherit property when you sell it. There are different tax considerations and basis you’ll need to use which is why consulting a real estate expert like Kevin Ho is important as “fair market value” becomes much more important. From the IRS, here’s Publication 559.
FREQUENTLY ASKED QUESTIONS
Question: How Can I Sell And Buy A New Home?
Here’s a chicken and egg question: How can you sell your home without having bought another one? How can you buy another home in today’s competitive market without selling your current one to finance the purchase of the new one?
First things first: As a seller you’re ultimately in charge because you’re the one who actually possesses the property someone else wants to buy. That being said, a lot of buyers who are willing to throw down large amounts of cash are ones who will be hard to refuse. You need someone on your side. And with me, you have a firm and professional advocate who is looking out for your needs, someone who is polite but will go to bat for you when it’s needed. I’m also someone who will prepare your property (and you) to get top dollar on your terms. Some of those terms could include a rent back after close of escrow that would all you to be a stronger bidder (maybe even all cash anyone?) for that next home of yours. The options are wide.
Remember, I’m here to help you, your family and friends succeed.
Question: What is “escrow” and how does it work? Is there a scarecrow involved?!
Question: What is “escrow” and how does it work? Is there a scarecrow involved?!
Escrow refers to a neutral third party whose job it is to hold funds, prepare documents and disburse funds for a given amount of time until certain events and conditions occur. Typically, escrow is a title company whose job is to provide title transfer, insurance and recording services to the buyer, seller, brokers, lenders and municipal government. Usually, one person and and assistant are the main points of contact. The escrow officer takes their instructions based on the terms of your Purchase Agreement, party instruction and lending requirements. The escrow officer can hold inspections reports and bills for work performed as required by the purchase agreement. Other elements of the escrow include hazard and title insurance, and the grant deed from the seller to you. Escrow cannot be completed until these items have been satisfied and all parties have signed escrow documents
Question: What regulates the deadlines during Escrow?
The Purchase Contract will contain all of the deadlines and relevant dates for the various conditions and contingencies the parties need to remove before escrow can close. Most commonly referred to as “contingency removals” usually take place according to the escrow timeline and schedule below which is the default used in the SFAR form. This is when and where deals will either fall apart or succeed. Adjusting these dates — the terms— in the Offer Contract may make our offer stronger or comparatively weaker than others. Adjusting timelines during escrow is also possible, but beware if there is a ‘better’ backup offer ready, willing and able to go. Last, according to the Statute of Frauds, matters affecting real property like amendments or removals, must be reduced to writing to be valid.
Question: Why a Pocket Listing is a Bad Idea
A pocket listing — also known as an off-market or private listing — is a method of listing a property where it is never publicly distributed. Or it is otherwise embargoed for a period of time. Either way, I don’t see it as a good way of selling a home because of:
- Less Exposure, Fewer Buyers vs. Exclusive Buyers looking for an elite class of properties.
- Preparation costs may be lower, but the ultimate sale price lower.
Unlike an ordinary listing that is advertised on the MLS, pocket listing are only advertised to select networks. Sometimes no one but an agent’s own client base even. On the one hand, the listing would be advertised agents with active and serious clients. But on the other hand, not every agent would be get an opportunity to consider the property. A seller may miss out on a higher dollar buyer because the MLS listing data is syndicated to a variety of outlets that reach far more people including those who haven’t hired an agent. On the other hand, not having to do open houses, dictating showing terms or maintaining discretion may counsel toward a private listing.