Financial Questions to Ask When Selling a Home
PJ Mitchell

PJ Mitchell

Oct 21, 2018

Checklists | FSBO | Home Sellers

The math seems simple: the original purchase price, plus renovations, minus the sale price equals your profit – but not so fast! So much more than that goes into the financial equation of selling your home. Working with a tax advisor or other finance pro to go over the ins and outs of your unique situation is key to covering all your bases. Here are a few questions to ask:

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Will I Pay Capital Gains?

Before you ask your CPA about tax consequences for selling a home, know this: Unless the sale of your home yields more than $250,000 for you as an individual or $500,000 as a married couple, you should not have to pay capital gains on your home  (assuming the property was used as your primary residence for at least two out of the last five years). However, any gains above this amount are taxed at the capital gains tax rate (which is lower than the regular income tax rate).

Profits on properties owned for less than one year can be subject to the short-term capital gains regulations, which are taxed at the same rate as regular income. Investment properties and inherited properties carry their own set of tax rules. If your property was used part of the time as your home and the rest of the time as a rental, your tax rate may vary proportionally as well. Also – bummer – but if you sell your home at a loss, it most likely won’t count as a tax deduction. Armed with this general knowledge, go forth and ask your accountant about your specific circumstances.

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How Will My Deductions Change?

Mortgage interest, property tax, and mortgage insurance are all tax deductible to a certain point. Changing your living situation will almost certainly affect this ratio. Work with a financial planner to determine the overall costs you may face when setting up your new home – think renovations and redecorating, plus moving costs, which under the new tax plan are no longer deductible. If the mortgage interest rate has gone up since you last took out a home loan, your new monthly payment will reflect this – and may even max out your mortgage interest deduction on a higher-priced property. Speak with your lender to explore current interest rates and how your payments will reflect this change.

Am I Comparing Apples to Oranges?

Every property comes with its unique fingerprint of conditions, from local property tax rates to weather, to the efficiency of appliances and beyond. Take, for example, utilities: moving to a warmer climate means upped electricity for cooling; versus a colder climate reliance on heating fuels, both expenses being subject to market fluctuations. Factor in what installing energy efficient HVAC will do to your bills and how the upfront cost will amortize to affect your overall cost of living. Working with a planner to weigh all of these costs against your new mortgage or rent is important to consider in your overall financial landscape.

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What Kind of Profit Do I Stand to Make?

In addition to standard real estate agent fees and commission, there are many hidden costs to selling a home. Subtracting deed tax, title closing, recording fees and so on from your sale price will help determine your bottom-line net proceeds – a crucial step to calculating your true purchasing power toward your next endeavor. Reviewing these fees with your lender is one way to get a clear picture of your costs. (You may also want to read The 9 Most Common Closing Costs Explained.)

Selling your home is an emotional process. Keeping on top of all the aspects of the financial side can be just too much to manage on your own. Confer with a trusted professional to weigh out all the financial consequences and benefits of selling your home.

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