That's the title of the cover story on my newsletter this month. This happens when you owe more money on your home than you can sell it for. Not everyone qualifies for a short sale. There is a very specific procedure that must be followed.
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Thanks.
Monday, October 15, 2007
Friday, October 5, 2007
Cost Basis and Your Taxes
When you sell a house, your adjusted cost basis is subtracted from your sales proceeds to determine your capital gain or loss. Basis starts with what you paid for the house. You can add capital improvements to basis, but not repairs or maintenance. However, if you sold a home before May 7, 1997 and deferred the capital gain by buying up into another home, that gain reduces the cost basis in your existing home.
For your primary residence as a single homeowner you can now exclude $250,000 in capital gains and married couples filing jointly can exclude up to $500,000. Any profit over these limits is taxed at the capital gains rate, which tops out at 15 percent.
According to Internal Revenue Service Publication 523, you can add to basis the cost of “additions and other improvements that have a useful life of more than one year.” So if you’ve added a family room, remodeled bathrooms or kitchens, added hardwood floors, or a deck, these all add to basis. Remember however, if you remodeled a kitchen 10 years ago, then decided to remodel it again today, you can’t add the cost of the first remodel since it doesn’t exist anymore. By the way, painting a house is considered maintenance and can’t be added to basis.
Also, when you sell you can deduct commissions, advertising, legal fees and any loan charges paid by the seller. Expenses to spruce up your home for sale such as painting or landscaping can’t be deducted or added to basis. I suggest you review your basis calculations with your accountant before preparing your taxes.
For your primary residence as a single homeowner you can now exclude $250,000 in capital gains and married couples filing jointly can exclude up to $500,000. Any profit over these limits is taxed at the capital gains rate, which tops out at 15 percent.
According to Internal Revenue Service Publication 523, you can add to basis the cost of “additions and other improvements that have a useful life of more than one year.” So if you’ve added a family room, remodeled bathrooms or kitchens, added hardwood floors, or a deck, these all add to basis. Remember however, if you remodeled a kitchen 10 years ago, then decided to remodel it again today, you can’t add the cost of the first remodel since it doesn’t exist anymore. By the way, painting a house is considered maintenance and can’t be added to basis.
Also, when you sell you can deduct commissions, advertising, legal fees and any loan charges paid by the seller. Expenses to spruce up your home for sale such as painting or landscaping can’t be deducted or added to basis. I suggest you review your basis calculations with your accountant before preparing your taxes.
Monday, October 1, 2007
Sellers - Get the Bad News First
If you are putting your home up for sale, should you consider having your own building inspection? The answer is "Yes."
Once a buyer makes an offer and you accept it, you have a contract. One of the most common conditions of that contract is, "offer contingent upon satisfactory building inspection." The buyer is going to have a professional home inspector go through your house to make sure there are not any hidden problems.
The last thing that you want is to have your deal fall through because of an unknown problem uncovered by the buyer’s building inspector. This is especially true if it is a minor problem and could easily have been repaired ahead of time -- if only you had known about it.
When the buyer’s inspector finds a problem, it can throw a monkey wrench into the works. The buyer will ask you to fix the problems found by their inspector – or no deal. If you do not want to fix the problems, they will ask for a reduction in price or a cash credit at closing – or no deal. In some cases, they buyer may even cancel the purchase entirely, not giving you a chance to make any corrections.
If the buyer cancels the purchase, where does that leave you? It leaves you with a house that you will have to put back on the market – a house that has been stigmatized. Future potential buyers and their Realtors will always wonder, "What happened with that first deal?".
Once a buyer makes an offer and you accept it, you have a contract. One of the most common conditions of that contract is, "offer contingent upon satisfactory building inspection." The buyer is going to have a professional home inspector go through your house to make sure there are not any hidden problems.
The last thing that you want is to have your deal fall through because of an unknown problem uncovered by the buyer’s building inspector. This is especially true if it is a minor problem and could easily have been repaired ahead of time -- if only you had known about it.
When the buyer’s inspector finds a problem, it can throw a monkey wrench into the works. The buyer will ask you to fix the problems found by their inspector – or no deal. If you do not want to fix the problems, they will ask for a reduction in price or a cash credit at closing – or no deal. In some cases, they buyer may even cancel the purchase entirely, not giving you a chance to make any corrections.
If the buyer cancels the purchase, where does that leave you? It leaves you with a house that you will have to put back on the market – a house that has been stigmatized. Future potential buyers and their Realtors will always wonder, "What happened with that first deal?".
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