With the Federal tax filing deadline being extended this year from April 15th to July 15th and the State filing deadline for Idaho being extended to June 15th, many of our clients have a lot of real-estate related tax questions. To get answers to your questions, we met with Jack Trent of Jack Trent & Co.
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Here are some of the most commonly asked real estate related tax questions we receive and Jack’s answers:
Q: When someone is thinking of selling their home, can they write-off the expenses such as advertising, Realtor fees, title fees, and legal fees? (0:51)
A: Yes, you can write off every dollar associated with selling your home; such as real estate commissions, advertising (staging), escrow fees, and legal fees. However, it is important to note that in order to write off the fees related to selling your home, it must be your principal residence and you will have to have lived in the home for two of the last five years. It is also important to keep in mind that these tax write-offs do not get deducted from your taxes like mortgage interest would, instead they are viewed as exclusions. All the money you spend, that is directly associated with the sale of your home gets added to your capital gains, which is essentially profit that you make on the sale of your home that you don’t have to pay taxes on. In other words, capital gains are like income that is free of taxation.
TIP: Be sure you are keeping receipts of everything you are doing to sell or stage your home because, in certain hot markets, where homes have appreciated a lot, you have the potential for some pretty large capital gains and every dollar counts.
Q: What about home improvements and repairs? Do they follow that same line of thinking? (3:12)
A: Yes, when you are getting ready to sell your home and want to make some significant repairs, you will want to keep track of all receipts so you can write off those expenses. Out-of-pocket expenses like painting, installing a new roof, and sprucing up your landscaping will not be included in your closing statement but are deducted just like your selling costs.
Q: Is there a tax rule about making those repairs or improvements and selling within a 90-day window? (4:10)
A: Yes, home improvements and repairs that you make to your home in order to get it ready to sell should be made within 90 days. However, if you have listed your home within the past 90 days and it’s taking you a bit longer to sell, you would still be able to capture those expenses.
Q: For those thinking about selling their home, would it be best to speak with a real estate agent as well as a CPA for a strategy on how to best attack the sale from a tax write-off standpoint? (4:40)
A: Yes absolutely, it is extremely important to consult with your CPA before you sell your home so that you can come up with the best strategy for tax savings.
Q: What are the write-off rules for capital gains and what does that mean for someone who is thinking of selling this year? (5:12)
A: The capital gains rules are relatively simple. You are required to live in the home for two of the last five years as your primary residence. You can then make up to $250,000 worth of capital gains free of taxation if you are single, and $500,000 if you are married. You will not be liable to pay taxes on your capital gains up to that amount.
For example, if the sales price on your home was $510,000 and you bought your home for $200,000 then your potential capital gains would be $310,000 if you are married.
Oftentimes, most people do not realize that owning real estate enables you to have a tax shelter where you can make a profit as the market improves over time and make income off of it. What other kinds of investment works like that? I have seen many people sell their homes in areas such as Seattle or California, make a huge profit on the sale, and then take that tax-free money and move it into their retirement. With the current capital gains laws, you can move every few years and take advantage of these amazing tax benefits.
If you have any additional tax-related questions, please feel free to reach out to Jack Trent and Co. at 208-947-2400.
If you have any other Real Estate questions for us, we’re always here to answer them via phone or email. We look forward to hearing from you soon.
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