There’s No Place Like Home… Until You Sell It

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BK+L e-news Bulletin

There’s No Place Like Home… Until You Sell It
By James Pepa, CPA   Partner

A home is often a person’s most valuable capital asset.  But what happens tax-wise when you sell your home?

The tax rules around sales of personal residences have changed numerous times in the past.  Gone are the days when you had to reinvest the proceeds from the sale of your home in a new home within a certain amount of time.  The current rules are such that, unless you have a significant gain on the sale of your primary residence, you may not even have to report the sale on your tax return.

You are not required to report the sale of your main home on your tax return unless: 

  • You have a gain and are not qualified to exclude all of it.
  • You have a gain and choose not to exclude it.
  • You received Form 1099-S.
 And even before you can apply these rules, you need to know the IRS definition of ‘main home,’ not to mention determining whether you have a ‘gain’ on the sale and if you can ‘exclude’ any of it.
Your main home is the home you live in most of the time, and can be a house, houseboat, mobile home, co-op apartment or condominium.  If you own more than one home, some factors to use in determining which is your main home are:
  • The amount of time you live in each home.
  • Your place of employment.
  • The location of your family members’ main home.
  • Your mailing address for bills and correspondence.
  • The address listed on your income tax returns, driver’s license, car registration and voter registration.

  Single filers may exclude up to $250,000 of gain on the sale of their home.  That amount goes up to $500,000 for married couples.  You must have owned and lived in the property as your main home for at least 2 years during the 5 year period ending on the date of sale, and the 2 years do not have to be consecutive.

Calculating gain is another adventure in and of itself.  You start by figuring the difference between what you paid for your home and the price at which you sold it.  The IRS terms are ‘amount realized’ and ‘adjusted basis.’  The amount realized is the selling price minus selling expenses such as commissions, advertising fees, and legal fees.  The adjusted basis is the amount you paid for the home originally plus settlement fees and closing costs.  You can also add in the cost of permanent improvements you made to the home.  If you did not buy your home, but received it as a gift, inheritance, in trade or from your spouse, different rules apply.  Things can get even more complicated if part of your home was used for business purposes or treated as rental property.

And what if you lose money when you sell your home?  Generally, losses incurred from the sale of your residence are not deductible.

The issues discussed here are just the basics.  Navigating all of the tax rules regarding the sale of your home can be tricky.  Please contact us if you have questions at or 847+866+6800.


What’s Ahead For Mortgage Rates This Week – April 21, 2014

Last week’s economic news supported the general outlook for moderate economic growth. Housing related news included the National Association of Home Builders / Wells Fargo Housing Market Index for April and Housing Starts for March.

NAHB: Builder Confidence Holds Steady Amid Concerns

The NAHB/Wells Fargo HMI for April ticked upward by one point to a reading of 47 against the March revised reading of 46. Home builders surveyed expressed concerns about high home prices, a lack of available lots for development and a labor shortage. Some desirable markets have been held back due to low inventories of available and/or affordable homes.

Builders surveyed for the HMI were asked to rate three components used in compiling the monthly index; these include current market conditions, market conditions expected over the next six months, and buyer foot traffic in newly built homes. April’s readings were 51, 57 and 32 respectively.

Readings for current market conditions and buyer foot traffic were unchanged from March, but builder confidence for market conditions in the next six months rose by four points.

Any reading above 50 indicates that more builders are confident about market conditions for newly-built single-family homes than not.

Housing Starts Pick Up After Winter Storms, But Fall Short Of Expectations

March Housing Starts rose by 2.80 percent at a seasonally adjusted annual rate of 946,000 starts as compared to expectations of 990,000 and February’s reading of 920,000 housing starts, which was revised from 907,000 starts.

The March reading represented a 5.90 percent decrease from March 2013, and is consistent with concerns expressed by home builders surveyed for the NAHB HMI for April.

Building permits issued for March were also lower by 2.40 percent at a rate of 990,000 permits issued. This slippage was largely due to the falling rate of building permits issued for apartment construction.

Higher home prices and mortgage rates along with inconsistent (but improving) labor markets were cited as reasons for builder pessimism, but analysts said that projects delayed by severe weather are expected to pick up in the coming months.

Mortgage Rates Fall, Discount Points Hold Steady

Last week’s average mortgage rates fell across the board according to Freddie Mac’s weekly Primary Mortgage Market Survey. The rate for a 30-year fixed rate mortgage fell by seven basis points to 4.27 percent. 15-year mortgages had an average rate of 3.33 percent as compared to the prior week’s reading of 3.38 percent. 5/1 adjustable rate mortgages had an average rate of 3.03 percent, down from 3.09 percent the previous week. Discount points were unchanged at 0.70, 0.60 and 0.50 percent respectively.

Fed Chair Upbeat In New York Speech

Federal Reserve Chair Janet Yellen struck a positive note in a speech given before the Economic Club of New York last Wednesday. She indicated that the Fed and many economists expect a return to full employment and stable prices by the end of 2016. Analysts characterized Yellen’s speech as upbeat on economic recovery and inflation, while “dovish” on monetary policy.

Ms. Yellen reiterated the Fed’s intention to monitor current and developing economic situations before making changes to its current monetary policy. She acknowledged that “twists and turns” in the economy could occur, and that Fed policy would shift as needed to address changes.

The Fed also released its Beige Book Report last Wednesday. This report indicated that the economy is recovering in most areas of the U.S.

This Week

This week’s scheduled economic news includes Leading Economic Indicators, Existing Home Sales for March, FHFA House Price Report for February and New Home Sales for March. The University of Michigan Consumer Sentiment report for April rounds out this week’s news.

What’s Ahead For Mortgage Rates This Week – April 14, 2014

What's Ahead For Mortgage Rates This Week 4-14-14While little housing-related news was released, last week’s economic news showed signs of a brighter economic picture.

Labor statistics were stronger, with job openings up and new jobless claims filed lower than expected.

Mortgage rates fell, and the University of Michigan’s Consumer Sentiment Index was higher than expected.

More Jobs Available, Fewer New Jobless Claims

The Bureau of Labor Statistics (BLS) reported that February job openings rose to 4.20 million, which exceeded January’s reading of 3.9 million jobs. New jobless claims were lower than expected with 300,000 new jobless claims filed against expectations of 316,000 new jobless claims and the prior week’s reading of 332,000 new jobless claims filed.

The Federal Open Market Committee (FOMC) of the Federal Reserve released minutes of its meeting held March 18 and 19. The minutes noted that payroll jobs expanded, but the unemployment rate remained elevated, and inflation was below the committee’s goal of 2.00 percent. Indicators of longer-run inflation expectations were seen as stable.

Severe winter weather was viewed as a cause for slowing economic activity. FOMC noted that it would be difficult to determine the effects of winter weather on the economy as opposed to slower economic growth caused by unemployment or other negative factors.

Housing Starts and Building Permits were lower, but FOMC noted the impact of winter weather on these reports. FOMC asserted its intention to continue reducing its monthly asset purchases by $10 billion per month as economic conditions permit.

The FOMC emphasized its commitment to continuous review of financial and economic news as it makes month-to-month decisions concerning asset purchases.

Mortgage Rates Fall, Consumer Sentiment Rises

Freddie Mac reported lower average mortgage rates last week. The rate for a 30-year fixed rate mortgage fell from 4.41 to 4.34 percent. The rate for a 15-year fixed rate mortgage dropped from 3.47 to 3.38 percent, and the rate for a 5/1 adjustable rate mortgage fell by three basis points from 3.12 percent to 3.09 percent.

Discount points were unchanged at 0.70, 0.60 and 0.50 percent respectively. Lower mortgage rates may encourage more buyers into the market as the spring and summer buying season gets under way.

The University of Michigan’s Consumer Sentiment Index for April rose to 82.60 percent against the March reading of 80.00 percent and the projected reading of 80.80 percent. If expectations prove correct, this week’s economic reports are expected to bring more good news.

Whats Coming Up This Week

This week’s scheduled economic news includes Retail Sales for March, which are expected to show a gain, the Consumer Price Index which is expected to hold steady, and the Home Builder Index, which is expected to rise.

Projections for Housing Starts are also higher. Fed Chair Janet Yellen is set to give a speech in New York on Wednesday, and the Fed Beige Book report will also be released. This week’s economic reports will wrap up Friday with Leading Economic Indicators.