Don’t Believe These Real Estate Myths About Selling!

real estate myths

Beware Of Tax Myths When You Sell

Selling your home is a serious and complicated venture. Did I mention complicated? It is many times over.

When its time to sell you have to roll up your sleeves, get out the calculator and get things going to get the house ready and on the market so you can get the best return on your investment.

The last thing you want to do is misunderstand the tax implications of selling your house end up missing out. You don’t want to fall for real estate myths when you sell.

Take a look at these tax myths about selling your house.

real estate myths

You can’t claim the capital gains exemption if you’re not living in the house at the time of sale.

For some reason, many taxpayers think you have to live in your house while it’s listed in order to claim the exclusion. Nope. The exclusion – which is up to $250,000 of the gain from your income ($500,000 for married taxpayers) is available to taxpayers who have owned and lived in their home for two of the five years prior to sale. The years don’t have to be sequential: you can live in the house in year one and in year five and still qualify. However, if you’re planning on renting your home out while you’re there, it complicates things a bit and you’ll have to pro rate the exclusion accordingly.

You can’t claim the capital gains exclusion unless you’re over the age of 55.

It used to be the rule that only taxpayers age 55 or older could claim an exclusion and even then, the exclusion was limited to a once in a lifetime $125,000 limit. The Taxpayer Relief Act of 1997 changed all of that. Now, age is just a number. And you can buy and sell as much as you want during your lifetime so long as the other criteria apply.

You can’t claim the capital gains exclusion unless you invest the proceeds from your home into the purchase of a new house.

Again, under old law, if you sold a house before May 7, 1997, you could only claim the exclusion if you used the proceeds from the sale of your home to buy another house within two years; this was sometimes referred to as the “rollover rule.” This rule no longer applies. The IRS doesn’t care what you do with the proceeds from the sale (your spouse may, however, care just a little).

You can claim a capital loss if you lose money on the sale of your home.

While it’s true that you must report and pay tax on capital gains from the sale of a personal residence, the converse is not true. You can never claim a capital loss on the sale of a personal residence – no matter how much it hurts. –  Forbes 

Watch Out For These Other Real Estate Myths

Now that the tax side of your sale is settled, let’s take a look at some of the other questions home sellers face and myths that are common but untrue.

Always change bold paint colors to neutrals before selling.
Reality check: False

Bold doesn’t automatically mean bad, says Kim Grant, broker with John Greene Realty in Oswego, Ill. Sometimes, a room calls for a grand color in order to play up an architectural feature, divide a room in two visually, or add cheer when there’s little natural light. But even if a room sports a bold shade of paint, home owners don’t always have to grab a brush to change it up before listing. Sellers can tone down a strong color with a neutral counterpart, such as a calming rug or tranquil array of fresh greenery. If the room needs a change, Grant suggests sharing the name of a painter, getting a bid on the cost of repainting, and offering a handful of paint chips that demonstrate alternative color options that are more universally appealing. “It’s up to the salesperson to explain that another color can transform the space without much effort,” Grant says.

Sellers should expect to earn back everything they invested in remodeling projects at resale time.
Reality check: False, but…

A quick check of the annual “Cost vs. Value” survey will demonstrate to sellers that it’s nearly impossible to get 100 percent of the money they put into a redo back when they sell. A siding replacement of fiber-cement brought the highest return in the most recent survey in the upscale project category, and that percentage was 84.3 percent. Still, Roman Bruno, a salesperson with Coldwell Banker in Los Angeles,has found that remodeled kitchens and bathrooms continue to be huge selling points to prospective buyers. “They make a home more attractive to potential buyers—and help them avoid doing the work,” he says. Paul Rosso, ABR, GRI, a salesperson with RE/MAX Properties Ltd. in Newtown, Penn., agrees that it pays to keep a house updated and in line with similarly priced homes in the community. The two times he cautions against upgrades are when a home owner plans to sell soon after making changes and when the market is flat or heading downward.

To sell quickly in this market, you must have the most popular features buyers are seeking.
Reality check: False, but…

It’s true that items such as master bedroom walk-in closets and first-floor master suites are all the rage now. But most homes in Los Angeles don’t have these features because they were built before these residential trends became widespread, says Bruno. “There is always a market for these homes, and someone with a vision may buy it just to update it,” he says. “Right now, we have little inventory and a lot of buyers — including absentee owners and investors — so we don’t see the need for redos as a problem.” Rosso agrees, but warns that the selling price usually reflects the absence of the feature: “Every home will sell, but at the right price. Price is the great equalizer.” – Realtor Mag

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