Tax Time: Can You Still Reap Tax-Free Profits?

Taxpayers who sell their principal residence can pocket—tax-free—as much as $500,000 in profit if they file federal taxes jointly or $250,000 if they file singly. The property must have been owned and used as their principal residence for any two of the prior five years that end on the sale date. News Alert - it's Tax Time

Homeowners can shelter the profits on the sale of a home as often as once every two years. If the two-year use and ownership tests are not met, but the home is sold because of special circumstances (i.e., health problem, job loss, etc.), the exclusion is prorated. Otherwise, gains above $500,000 or $250,000 are taxed at current capital gains rates plus may be subject to an additional 3.8% surtax, depending on income.

Some More Complexities

In effect since January 1, 2013, the Net Investment Income Tax (NIIT) applies a 3.8% surtax to certain types of net investment income of individuals, estates and trusts that have modified adjusted gross income (MAGI) exceeding certain thresholds. For individuals, the MAGI threshold for a single filer or a person filing as head of household (with qualifying person) is $200,000; for married filing jointly or for a qualifying widow(er) with a dependent child, $250,000; and for married filing separately, $125,000.

The 3.8% tax is applied to whichever amount is less—your net investment income or the amount your income exceeds the applicable threshold. For example, if a couple’s net investment income is $200,000 while their MAGI is $300,000 ($50,000 above the applicable threshold), the 3.8% tax would be applied to the $50,000 in excess of the threshold.

For home sellers with MAGI above the applicable threshold, the 3.8% tax may be applied to their home-sale gains that exceed their home-sale gain exclusion ($500,000 for married joint filers, $250,000 for single filers). If your MAGI amount above the threshold is less than your un-excluded home-sale gains plus net income from certain other investments, you would only owe the 3.8% tax on the excessive MAGI amount (NIIT applies to the lesser of extra income or extra gains). You can still take either $250,000 or $500,000 in profits from your home sale tax-free.

Income from rental property, gains from the sale of a second home and gains from the sale of an investment property would be considered part of net investment income (and possibly subject to the NIIT) to the extent that gains are not otherwise offset by capital losses.

This is just an introduction to a complex financial topic. For more details on what you can or cannot deduct, consult a qualified financial professional.

So… Is It Time to Renovate the Bathroom?

Let’s tackle an age old homeowner question, “So… Is It Time to Renovate the Bathroom?” Well since I’ve never seen your bathroom, that’s a question you’ll need to answer yourself. 🙂 With that said, it is something that does bring value to your home! The best way to inject freshness back into your bathroom is by redoing the walls. Tile wasn’t made just for the floor! Bathroom remodel

Consider these:

  • Accent tile above the vanity adds a bit of glam at a low price.
  • White subway tile is a classic look that can be paired with any other patterns or colors. Choose a dark-color grout to avoid visible mold stains.
  • Three-dimensional tile can echo another time period and is a unique decoration.
  • Create a tile rug using a different pattern of tile in the middle of your floor. You don’t have to do a whole renovation for this — simply remove some old tiles and pop in the new ones.
  • Tiles add texture and personality to a bathroom, so don’t be afraid to play it unconventional.

You know you want a new shower and bath and there are some gorgeous ways out there to bring the spa into your en suite.

  • Frameless glass showers are getting big right now, and for good reason: They look sleek, clean easily and help aging family members have easy access. Having an ADA-compliant house may also increase your resale value.
  • Freestanding tubs may add to your water bill, but they’re great for a bubble bath.
  • Shower benches bring relaxation into the shower — add steam, multiple showerheads or a rain shower for extra luxury. (If you add a steam feature, be sure to add a vapor barrier to the ceiling and walls to prevent moisture from rotting the wood.)

An absolute necessity is some good storage in your bathroom. Towels, hairdryers and more must have their place.

  • Vertical cabinetry is stylish — go up whenever you can.
  • Floating vanities are all the rage right now, as the open space between the vanity and the floor adds an airy quality to the room. Add cabinets to turn art into extra storage.
  • Antique or interesting furniture can also provide storage with a unique twist.
  • Mix up open and closed storage to prevent the monotony of a cabinet wall.
  • As much as possible, remove cabinetry to make room for other, more rewarding bathroom features.

Amenities are the most fun part of renovating, when you get to add all those exciting features.

  • Radiant-heat flooring under stone floors can bring warmth to a cold winter day.
  • Seating in the bathroom can give you a place to relax in the morning; consider an ottoman or a window bench.
  • A fireplace can be classy and soothing.
  • Bring in some radio or music with a Bluetooth speaker or showerhead; if you really want some entertainment, go for a TV.
  • Heated towel bars ensure your towel is warm when you get out of the shower.
  • Windows and skylights fill the bathroom with natural light.

Budget carefully and you could have your own five-star spa without breaking the bank. A bathroom reno can let you live in luxury every day.

 

Is it risky buying a new home before selling a home you currently own?

Is it risky buying a new home before selling a home you currently own? There is no simple answer… Knowing and understanding your options can help you make the decision that’s right for you. There can be several advantages to buying a new home before selling your current one, so we’ve broken down a few things you should consider.

Timing Your Move
You can take your time with the buying and moving process. You’ll have more time to shop for a new home that has the features and location that you want. Then once you buy your new home you can move in at your own pace, and put your current home on the market when ready. buying a home, selling a home

On the other hand, if you sell your current home before buying, you face the possibility of not having a place to live. There are options. You could rent until you buy a new home, including the possibility of renting your current home from the new owners. Or, once you have an offer, you can begin shopping for your new home and try to coordinate closing dates. While not impossible, this would take a bit of finagling and a lot of luck.

Financing Your Move
If you still owe money on your current home, then you’ll have to be able to afford two mortgages until your current home sells. How quickly that happens depends on the housing market in your area. Having two house payments will limit your purchasing power for a new home.

Selling before you buy gives you the advantage of knowing the exact amount you can put toward your new home purchase. While this might give you more peace of mind and buying power, it might mean missing out on homes you want while waiting for yours to sell.

Ask a Professional
Your real estate agent can estimate the value of your current home and how quickly the current market is moving. They can also help you find information about neighborhoods you are interested in moving to and how much buying power you’ll need for the home you want.

A mortgage lender can help you figure out if you can afford to have two mortgages. They can also inform you about how to use equity in your current home to help with the down payment on a new home.

Whether you decide to buy first or sell first, you can make the process easier by being prepared and able to take action when the right opportunity comes along.

Have more questions about buying a new home before selling your current one? Feel free to contact me for more information.