Selling Your Home – Taxes and Thoughts to Consider

With the recent strong real estate market, you may wonder if selling your home and capitalizing on the appreciation makes sense for you. This has been a popular topic in 2021/2022 so here are my thoughts and some details to consider:

First off, I get this question a lot – “what taxes will I pay if I sell my home”?

If you sell your primary residence (where you live most of the year), you may qualify to exclude the first $250,000 of gain if you’re single, or $500,000 of gain if you’re a married couple filing jointly.

  • For example, if you’re married filing jointly and bought your house for $300,000, you may qualify to pay $0 in taxes if you sell that house for any amount under $800,000. But you have to qualify for this exclusion. irs.gov/publications

There is no 1031 exchange on a primary residence. There is no time table where you have to buy your next home in a certain time period to avoid capital gains taxes. That is all for INVESTMENT properties or any other property that is classified as not your primary residence.

My thoughts on if you’re considering selling your PRIMARY Residence

  • In some cases, it certainly can make sense. Especially when the plan all along was to eventually sell and move:
    • Into Assisted living/Independent Facility
    • Out of the country
    • In with an adult child/relative
    • To a rental property/apartment
    • To a part of the country/state that is more affordable

Now may be a great time to execute this plan and sell. As always there are possible downsides, so contact us to run through your unique details before pulling the trigger.

  • Be careful if you’re selling but you plan to buy another home. The problem with selling your house at all-time highs is turning around and buying at all-time highs. It may end up being a wash or worse, more expensive than just staying put.
    • First there are closing costs/realtor fees to keep in mind.
    • Also, your property tax bill may have just increased because the home you bought was appraised at the new shiny value that you just bought it for. Whereas if you live in Texas your old home’s property taxes, by Texas State Homestead Exemption Law, can’t increase more than 10% each year.
    • If you’re getting a mortgage on the new home, you’re also likely getting a higher interest rate than your previous mortgage. If interest rates fall in the future then you can refinance but no one is sure if/when that will occur.
  • Be aware of “downsizing” in this market as well. That $200,000 house five years ago might be selling for $400,000 now. Downsizing in this market may not be the cost saver it used to be.

Let us know if you want to discuss your situation or the situation of a loved one to see if it makes sense for you!

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