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Category Archives: Home
It depends on several factors, including whether the home is your principal residence or takes some other form (such as a vacation home or investment property). If you owned and used the home as your principal residence for a total of two out of the five years before the sale (the two years do not have to be consecutive), you may be able to exclude from federal income tax up to $250,000 (up to $500,000 if you’re married and file a joint return) of the capital gain on the sale of your home. You can use this exclusion only once every two years, and this exclusion does not apply to vacation homes and pure investment properties.
For example, Mr. and Mrs. Jones bought a home 20 years ago for $80,000. They have used it as their principal home ever since. This year, they sell the house for $765,000, realizing a capital gain of $613,000 ($765,000 selling price minus a $42,000 broker’s fee, minus the original $80,000 purchase price, minus $30,000 worth of capital improvements they’ve made over the years). The Joneses, who file jointly and are in the 28 percent marginal tax bracket, can exclude $500,000 of capital gain realized on the sale of their home. Thus, their tax on the sale is only $16,950 ($613,000 gain minus the $500,000 exemption multiplied by the 15 percent long-term capital gains tax rate).
What if you fail to meet the two-out-of-five-years requirement? Or what if you used the capital gain exclusion within the past two years with respect to a different principal residence? You may still qualify for a partial exemption, assuming that your home sale was due to a change in place of employment, health reasons, or certain other unforeseen circumstances.
You should also be aware that special rules might apply in the following cases:
- If you sell vacant land adjacent to your principal residence
- If your principal residence is owned by a trust
- If your principal residence contained a home office or was otherwise used partially for business purposes
- If you rented part of your principal residence to tenants
- If you owned your principal residence jointly with an unmarried taxpayer
Note: Members of the uniformed services and foreign service personnel may elect to suspend the running of the 2-out-of-5-year requirement during any period of qualified official extended duty up to a maximum of 10 years.
Consult a tax professional for more details.
Need more information? Send me an email!
Here’s a great article about Homeowners’ Insurance by Mary Snider, CLU, CPCU, State Farm® agent:
Some of you may be asking yourself, “Does my insurance coverage fit my needs?” “Do I have enough coverage to replace my home in the event of a serious loss?” “What affects my premium?”
These questions create a need for you to regularly review your Homeowners Insurance and to consider other questions such as: “Have you recently remodeled or improved your home?” “Has the rate of inflation risen since your last appraisal?” “What influences the building construction costs in your area?”
As you consider these issues, it is important to understand that real estate values measure the market value or selling price for a home. For insurance purposes, it is important to estimate the current replacement cost which is the amount needed to hire a contractor to repair the damage or to rebuild the home to its pre-loss condition. Dwelling replacement costs used by insurance companies do not include the value of the land. Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss.
Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost for your home. Estimates from these sources should reflect your home’s specific features and details. If you are unable to obtain a detailed estimate from these sources, I can help provide an estimate.
Once you know the estimated cost to replace your home, you can decide how much insurance coverage fits your needs. You should also consider other policy endorsements such as back up of sewer and drain coverage, or additional coverage for personal articles with high values such as jewelry, fine arts, and collectibles.
You may want to consider higher personal liability coverage or the need for Flood Insurance which is provided by a separate policy. In addition to the amount of coverage you decide to purchase, your premium is impacted by optional endorsements you select, your claim history, the amount of your deductible, company longevity and multiple policy discounts such as home/auto.
Finally, remember to periodically review your insurance coverage with your agent. That will ensure you have the coverage you need.
If you have any questions, feel free to email me!
Title: Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.
Title Insurance Policy: A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.
Title Search: A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.
Transfer Tax: In some areas city, county or state taxes imposed when property passes from one person to another.
Truth-In-Lending: Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.
Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.
That’s it, that’s all I have. You are now one step closer to being a savvy mortgagor! For more mortgage information, go to my web site at Mortgage Link!
Second Mortgage: A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.
Secondary Mortgage Market: The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
Survey: A map prepared by an engineer or surveyor charting a particular piece of real estate.
Qualifying Ratios: Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).
Real Estate Settlement Statement: Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.
Realtor: A real estate broker or sales associate affiliated with the National Association of Realtors.
Recording Fee: The charges made by the register of deeds to record the legal documents.
Refinancing: Repaying a debt with the proceeds of a new loan, using the same property as collateral.
PITI: An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.
Plat: A map of a piece of land showing boundary lines, streets, actual measurements and easements.
Point: A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.
Prepayment Penalty: A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.
Pre-Approval: A commitment by a lender to extend credit provided that specific conditions are met.
Pre-Qualification: A preliminary assessment of a buyer’s ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
Prime Rate: The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.
Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
PMI (Private Mortgage Insurance): Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.