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Tax Advice if You Sold Your Home

Tax Implications of Selling a Home

Did You Sell Your Home After Making Improvements?

Keeping track of the cost of capital improvements to your home can really pay off on your tax return when it comes time to sell.

Tax Implications of Selling a Home

It’s no secret that finishing your basement will increase your home’s value. What you may not know is the money you spend on this type of so-called capital improvement could also help lower your tax bill when you sell your house.

Tax rules let you add capital improvement expenses to the cost basis of your home. Why is that a big deal? Because a higher cost basis lowers the total profit—capital gain, in IRS-speak—you’re required to pay taxes on.

The tax break doesn’t come into play for everyone. Most homeowners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to track capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.

What Counts As a Capital Improvement?

Although you may consider all the work you do to your home an improvement, the IRS looks at things differently. A rule of thumb: A capital improvement increases your home’s value, while a non-eligible repair just returns something to its original condition. According to the IRS, capital improvements have to last for more than one year and add value to your home, prolong its life, or adapt it to new uses.

Capital improvements can include everything from a new bathroom or deck to a new water heater or furnace. Page 9 of IRS Publication 523 has a list of eligible improvements.

There are limitations. The improvements must still be evident when you sell. So if you put in wall-to-wall carpeting 10 years ago and then replaced it with hardwood floors five years ago, you can’t count the carpeting as a capital improvement. Repairs, like painting your house or fixing sagging gutters, don’t count. The IRS describes repairs as things that are done to maintain a home’s good condition without adding value or prolonging its life.

There can be a fine line between a capital improvement and a repair, says Erik Lammert, former tax research specialist at the National Association of Tax Professionals. For instance, if you replace a few shingles on your roof, it’s a repair. If you replace the entire roof, it’s a capital improvement. Same goes for windows. If you replace a broken window pane, repair. Put in a new window, capital improvement.

One exception: If your home is damaged in a fire or natural disaster, everything you do to restore your home to its pre-loss condition counts as a capital improvement.

How Capital Improvements Affect Your Gain

To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name a few. You should be able to find all those costs on the settlement statement you received at your closing.

Next, you’ll need to account for any subsequent capital improvements you made to your home. Let’s say you bought your home for $200,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $225,000.

Now, suppose you’ve lived in your home as your main residence for at least two out of the last five years. Any profit you make on the sale will be taxed as a long-term capital gain. You sell your home for $475,000. That means you have a capital gain of $250,000 (the $475,000 sale price minus the $225,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.

Here’s where it gets interesting. Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you’ve saved about $5,000 in taxes based on the  15% tax rate on capital gains. Well worth taking an hour a month to organize your home improvement receipts, don’t you think?

The top rate for most homesellers remains 15%. For sellers in the 39.6% income tax bracket, the cap gains rate is 20%.

Watch Out for These Basis-Busters

Some situations (below) can lower your basis, thus increasing your risk of facing a tax bill when you sell. Consult a tax adviser.

  • If you use the actual cost method and take depreciation on a home office, you have to subtract those deductions from your basis.
  • Any depreciation available to you because you rented your house works the same way.
  • You also have to subtract subsidies from utility companies for making energy-related home improvements or energy-efficiency tax credits you’ve received.
  • If you bought your home using the federal tax credit for first-time homebuyers, you’ll have to deduct that from your basis too, says Mark Steber, chief tax officer at Jackson Hewitt Tax Services.

Tips for Buyers and Sellers

Tips For Buyers and Sellers

Today I attended a wonderful seminar on flood insurance guidelines and fortified homes.  In our area of Fairhope/Point Clear, our home owner’s insurance rates can be higher than in other parts of our state of Alabama due to our location being hurricane proof.  Tips for you, if you live on the bay or in areas that might have an issue on flooding–please get an elevation certificate.  If you have a elevation certificate, do not loose it.  Your insurance agent will want a copy of it.

In insuring homes, the age of the roof, as well as the electrical and plumbing upgrades are big questions of an insurance agent.  If you replace your roof, make sure you take the steps to get it certified.  Certification normally costs about $400-$500 but needs to be done while the roof is being replaced.  Photos need to be taken to show how the roof is being installed.  In our city, a permit is required and roofers have to comply with the city of Fairhope guidelines.

If your home was gold certified when it was built, you must have a certification from the builder.  This certification is good for 5 years.  All certifications will give an expiration date.  Home owners need to contact a local company that can re-certify your home which costs can vary between $150 to $300.  Beware of the recertification.

FEMA flood insurance will expire on November 21st, 2019 unless Congress extends it.  The House has approved the bill titled HR3167 which is now in the Senate’s hands.  Hopefully this will be approved and no extension will be necessary.  Limitations on FEMA is $250,000 for structure and $100,000 for contents.  If you need more coverage,  insurance agents encourage looking at private companies and compare costs for flood.  This was excellent information.  So many homes are underinsured today.

I hope these tips help you.

Any questions, feel free to e-mail me at Judy@AshurstandNiemeyer.com

 

16789 River Road, Bon Secour, AL

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Met a client early this morning and walked this magnificent property. 3 acres with 247 front feet on Magnolia River. The main house was built in 1850 with tons of Southern charm. The guest house is 1/1 with a wide glassed in porch. As we walked the property, birds were chirping and shrimp boats engines were humming. Serenity were the views of Bon Secour River.

Finest Day –

Is closing a Special Listing on Mobile Bay in Fairhope, Alabama.

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Brilliant Sunset Sky

This is why I love living and selling Fairhope, Alabama.  Night before last, our sky was brilliant from the setting sun. The above pictures shows the beginning to the end. Each night is different, but this night was special. Our little town of Fairhope is getting ready for downtown trick and treat. This will be Saturday from 10-2. Please stop by our downtown Ashurst and Niemeyer office.

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Henry Ford once said “Coming together is a beginning. Keeping together is progress. Working together is success.”

How this saying fits with real estate but also in all walks of life. This past Friday was of course the first Friday of the month but in FAIRHOPE it is “Art Walk”. Ashurst and Niemeyer’s downtown office on Section was open to our many clients as well as public. Music was provided by Jeff Farrow, who was incredible. Thank you for all that dropped by. This night was a tremendous success.

If you have not attended Art Walk, please put it on your calendar. You can start at the Art Center and stroll throughout the town. Be sure to make reservations for dinner to top off your evening. Fairhope is a truly wonderful place to live.

Cotton Fields back home….

“When I was a little bitty baby
My mama would rock me in the cradle
In them old cotton fields back home”….

What a beautiful site to see, as I drove around Baldwin County yesterday.

I thought I would share a few of the pictures I took
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WE ARE LIVING IN THE RIGHT PLACE

Movoto, a real estate blog, managed by Randy Nelson, has ventured to rank THE 10 SMARTEST PLACES IN ALABAMA based on a series of criteria including number of colleges and universities per capita; library per capita; museums per capita; percent of residents with bachelor’s degree or higher; high school graduation rate; and average K-12 class size.
So which cities landed on the “A” honor roll as Alabama’s smartest? Here you go:
1. Mountain Brook
2. Fairhope
3. Chelsea
4. Helena
5. Homewood
6. Calera
7. Vestavia Hills
8. Huntsville
9. Irondale
10. Muscle Shoals, Montgomery (tie)

WE ARE LIVING IN THE RIGHT PLACE—FAIRHOPE RATES AS #2.

Selling this life style is so easy

Driving to work today, I thought about how blessed I have been to be in real estate in Fairhope, AL. Selling this life style is so easy. Oak trees cascade over Scenic 98/Main Street. Our sunsets are at our finger tips whether you live on the bay or just walk out on our magical pier at the foot of Fairhope Avenue. We all love to gather by sitting on park benches or walk the length of the pier. Fairhope is like a little village with beautiful homes within a short distance to downtown. This is a great place to live and again being in real estate. I feel that I am the perfect voice for this community. Look at our Sunsets, enjoy.

another beautiful sunset 2015-08-22

 

Home Value: Walmart and Surf Breaks?

9 Surprising Things That Add Value to Your Home

A home’s value is dependent on many things. Here are nine factors you might not have thought about.

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What do surf breaks, Walmarts, and public transportation have in common? Being near any of them can add thousands to your home’s value.

At least that’s what various university researchers have found based on their evaluation of variables that could be influencing home prices. Their conclusions might surprise you. Here’s what they found:

 

1. Surf Breaks

Being within a mile of a surf break (a spot where surf-able waves happen) adds about $106,000 to a home’s value, according to surfonomics experts at the Monterey Institute of International Studies.

Reality check: Mother Nature makes surf breaks, so it’s not like you could build your own DIY break to boost your home’s value.

 

2. Parks and Open Spaces

A desirable public park or other recreational open space boosts the property value of nearby homes by 8%-20%.

One study looked at 16,400 home sales within 1,500 feet of 193 public parks in Portland, Ore., and found these boosts to home values:

  • Natural areas: $10,648
  • Golf courses: $8,849
  • Specialty parks: $5,657
  • Urban parks: $1,214

Reality check: A park that’s not maintained and overcrowded can drag down nearby home values.

 

3. Living Near a Walmart

Along with making it easier to run out for a gallon of milk at midnight, researchers at the University of Chicago concluded that living within a mile of a Walmart store could raise your home’s value by 1%-2%, and living within half a mile could boost your property value by an additional 1%.

For an average-size home, that’s an uptick of $4,000-$7,000.

Realty check: What you gain in home value, you may end up spending at Walmart.

 

4. Solar Photovoltaic Systems

California homes with solar photovoltaic (PV) systems sell for a $17,000 premium over homes without solar systems, according to research from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory.

Reality check: Although costs for residential solar power systems are falling, they’re still rather pricey at $15,000-$40,000, depending on the size of your house.

 

5. Walkability

Being able to stroll to schools, parks, stores, and restaurants will raise your property value anywhere from $4,000-$34,000, says a 2009 study from CEOs for Cities.

Reality check: The biggest boost in walkability values occurred in large, dense cities.

 

6. Accessory Dwelling Units

Whether it’s a granny flat, an in-law apartment, or a carriage house, having a separate unit can increase your home’s value by 25%-34%, according to a study of 14 properties with accessory dwelling units in Portland, Ore. You can also get a steady stream of income from a second unit.

Reality check: Local governments often ban accessory dwelling units, so check zoning laws, building codes, and homeowners association rules before you add a unit.

 

7. Professional Sports Arenas

A new pro sports stadium can raise property values in a 2.5-mile radius by an average of $2,214. The closer you are to the new facility, the larger the increase in home value. Researchers from the University of Illinois at Urbana-Champaign and the University of Alberta examined house sales in Columbus, Ohio, before and after the city added two sports stadiums.

Reality check: If a stadium is proposed, home values can decline a bit until the project is complete. And if you live really close to a stadium, you may encounter traffic and parking issues.

 

8. Community Gardens

Planting a community garden raises the value of homes within a 1,000-foot radius by 9.4% within five years, according to research by the Office of the Comptroller of the Currency and New York University School of Law.

The impact increases over time, and high-quality community gardens have the greatest positive influence. Poor neighborhoods saw the biggest gains in home values.

Reality check: Gardens on privately owned land and in higher-income neighborhoods don’t have the same beneficial influence.

 

9. Trees

No real surprise here — whether trees are in your yard or just on your street, they’re a valuable asset you should be aware of. Here’s a gauge of how much trees are worth to your home value according to a University of Washington research survey:

  • Mature trees anywhere in your yard: 2%.
  • Mature trees on your street: 3%.
  • Trees in your front yard: 3%-5%.
  • Mature trees in high income neighborhoods: 10%-15%.

Reality check: Trees usually mean work — raking leaves, trimming branches, and keeping roots out of sewer lines.