THE NOT SO SECRET SECRETS OF SAVVY SELLERS
I'm sure you want to maximize your profit when selling a home. Many people are tempted to consider options such as working with a discount real estate agent or entering into a sale-by-owner program, but I’m here to tell you, “No! Don’t go down either of those roads.” I know from my own extensive experience that when all is said and done, the stress and work involved can be substantial. And you might actually lose money in the end.
Think about it. You need to stay focused on your job. You don’t need to take on the added burden of becoming a real estate expert. Find someone who loves selling real estate, lives it every day and is eager to help you sell quickly for optimum return on your investment.
There are sensible ways you, as a savvy seller, can maximize your profit when selling a home. Here are 3:
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Closing Adjustments
As a seller, you can be repaid at closing for several things, including any service or supplies contracts you have prepaid. All you have to do as a seller is identify each contract, create a per diem cost allocation for each one, then multiply that cost by using the days remaining on the contract at the time of the closing date.
Here are some examples of contracts to include:
- Propane, oil or any fuel contracts
- Water
- Real estate town and village taxes
- Condominium / cooperative common / maintenance charges
- Pool service
- Pest control
- Gardening
When you add up the amount you paid for all your contracts after the closing date, you can recoup as much as tens of thousands of dollars in prepayments. All you need is the documents along with the adjustments.
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IRC §1031
Wondering how to avoid capital gains taxes? Ever consider exchanging your home for another? For sellers subject to California income tax, state tax law follows federal law for purposes of deferral under Section 1031. Advanced planning is key to success in any exchange, no matter what state you’re in. Sellers must pay particular attention to the timing of the sale of their relinquished property. You also have to estimate your equity and debt replacement objectives and retain an expert, qualified intermediary.
Keep in mind, the IRS will not honor the exchange if either the 45-day identification period is missed, or your replacement property is not acquired within a 180 day exchange period. While the deferred capital gain will continue on the property acquired as a tax attribute. But, if you use section 1031, you will be able to defer the capital gains tax owed for an indefinite period of time. That means sellers can compound their real estate purchasing power by including the unpaid tax into their available purchasing monies for their next transaction. (Make sure you talk to your accountant or tax attorney before you put IRC §1031 into action.)
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Mortgage Interest/Real Estate Tax Deductions
As all wealthy individuals know, it takes proper planning to make money while limiting the taxable amount. That means savvy home sellers look for legal ways to take deductions from their taxable gross income. Again, make sure you work with your accountant or tax attorney and follow the new tax laws. As I understand it, however, most homeowners can still deduct all of their mortgage interest, which is one of the most popular and lucrative tax breaks for wealthy individuals.
Since 2018, mortgage interest on the total principal of as much as $750,000 in qualified residence loans can be deducted. That amount is down from the previous principal limit of $1,000,000. If you’re married and filing separate returns, the new principal limit is $375,000. That amount is down from $500,000. It's worth pointing out that this limit only applies to new loans originated after 2017. Preexisting mortgage loans are grandfathered into the old limits. For those who want to deduct their home equity interest, they can if the loan was used to improve the taxpayer's home. Otherwise, the amount is no longer deductible.
Tax reform promised to make preparing tax returns simpler, even for those who are selling a property. If that’s you and you’re looking to sell in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities, please call at +1 (805) 886-9378 or email me at Cristal@montecito-estate.com.
Read: Cristal Clarke: The Expert in the Montecito Real Estate Market!
NOTE: My listing featured in the photo at the top of this blog post, an impressive Ocean & Mountain View Ennisbrook Estate, is a classic example of Modern Mediterranean design. Anyone would be happy to live in the safe, gated, private community of Ennisbrook. The entire community is blessed with extraordinary landscaping, privacy, open spaces and a connection with nature. Over 50 acres in the community have been set aside as open space. Interested? Let’s talk.