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Take Your House to the Bank

Feb 01, 2016 11:18AM ● Published by Cristina Candelori

Ken Marson and Cristina Candelori

The best tax break available to homeowners is selling their home. Most homeowners are familiar with capital gains, but it’s important enough to review.

If you have lived in your home for two of the previous five years, you are eligible to deduct capital gains up to $250,000 for a single person and $500,000 for a married couple (in most cases). To figure this out, it’s important to first establish a base value of your home. This is the amount you paid for the home plus capital improvements. If you sold a home before 1997 and rolled over any profit into your primary residence, you must subtract that amount. Compare this number to the new sale price of your home minus any commissions and expenses to get the profit. Unless that profit is more than the $250,000 or $500,000, you won’t owe Uncle Sam anything on the sale of your home, but if your profit was $550,000 you’ll only owe taxes on $50,000.

Married couples must have lived in the primary residence for two years together even if not married the entire time. The one exception is for a new marriage in which one spouse sold a home within the last two years. In that case, they cannot qualify jointly, but the other spouse can still qualify for $250,000 in gains.

Let’s say you own a rental property and you lived in it off and on during the last five years. As long you lived in it accumulatively for a total of two years out of the five, you still qualify for the tax break even if you don’t live in it at the time of the sale.

Some exceptions to the two-year rule include military personnel who are required to move a lot and anyone needing to move for special conditions, such as health or a new job.

For homeowners over 55 who would like to downsize it gets tricky. Many of them purchased their primary residence decades ago and have enjoyed fairly low property taxes, but the purchase of a new home would require reappraisal that could double or triple their taxes, making it unfeasible to move. This is where Proposition 60 helps the over-55 community. Prop 60 allows them to transfer their current property’s assessed value into a new replacement property, yet still pay the same property taxes. The new property must be of equal or lesser value and purchased or newly constructed within two years of the sale of the primary residence and within the same county. Proposition 90 will allow a move to another county at their discretion. Prop 60 and 90 can only be used once in a lifetime, with the exception of disabled persons.

Every penny counts, and it’s important to be informed. We advise talking to a realtor and meeting with a certified tax professional to find out all your options. We are your Pleasant Hill neighbors and want you to love where you live. 

Marson and Candelori

Ken Marson and Cristina Candelori

Love Where You Live

(925) 366-8269

marsoncandelori@gmail.com

BRE#01922446

BRE#01258364

Home+Finance real estate Marson and Candelori february 2016 Take Your House to the Bank every penny counts

 

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