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As a REALTOR® I help clients maximize the value of their homes beginning with the purchase, during ownership, and finally with the sale of the home. This blog is one of the methods I use to deliver enhanced value.
The Roberts Team with Long and Foster
Mobile: 301-873-2106
Office: 301-424-0900

Tuesday, October 15, 2024

Capital Gains Taxes on the Sale of your Home

This blog is primarily about helping people buy and sell homes. Earlier this year, I wrote a four-part blog on ideas for preparing your home for sale by decluttering and dressing your home for a successful sale. While that may be a lot of work, those tasks can help you save a lot of time and expense when you’re ready to sell.

This post is somewhat similar. When you sell your home, Uncle Sam, as usual, wants his cut of the action in the form of Capital Gains Taxes. Although it is not too painful for most of us,  I want you to be aware of the tax and help you understand some of the rules, so you can be prepared. Hopefully you will pay as little in taxes as possible or perhaps make a little more on the sale.

This is a complicated subject, so let me make my disclaimer here. I am a REALTOR, not a financial advisor, CPA or tax expert. The following information is deemed to be accurate, but not guaranteed. This post is not intended to provide tax advice, but rather to make the reader aware of the basic rules that may apply to their specific situation. You are encouraged to reach out to appropriate experts.

Most of the time, when we sell our homes, we sell it for more than we bought it for; we sell it for a profit or capital gain. The tax code requires us to pay taxes on those gains. Capital gains are essentially the appreciation in the value of the home. For the last 25 years or so, the average home in our area has appreciated 5.5% per year. Most homes are a great investment! As an example, let’s say I bought my home for $125,000 (Cost Basis) and sold it for $800,000. Stated in a formula:

Sale Price – (Purchase Price + Improvements) = Capital Gain (Loss)

The appreciation or gain in value is $675,000. This is income, classified as Capital Gains, for the year in which the home is sold. We will discuss adjustments and tax rates further down in the post.

The tax code allows for some immediate relief or exclusions for some of those gains, if you qualify. You can exclude $250,000 as a single filer or $500,000 if you file a joint tax return.

To qualify for the exclusion, you must meet both the “ownership test” and the “use test” as follows:

Ownership Test: You must have owned and used your home as your main residence for at least two years out of the five years prior to its sale and

Use Test: During those five years, the home must have been your primary residence for the required period.

For complete eligibility requirements, limitations, and exceptions to the two-year rule, please refer to IRS “Publication 523, Selling Your Home”, There are additional rules for military, some government personnel and installment sales.

Upon the closing of the sale, the Title company will normally file Form-1099S with the IRS. If they do, you will need to report the sale even if the sale is fully excludable. You report your home sale on your income taxes for the year in which you sold it, using the Form 1040. The home sale is reported on “Schedule D (Form 1040)” and “Form 8949” for your return. However, Capital Gains are taxed at a special rate. Based on your tax filing status, the rate you pay depends on the net capital gain as shown in the table below.

Rate

Single

Married Filing Jointly

Married Filing Separately

Head of Household

0%

$0 – $47,025

$0 – $94,050

$0 – $47,025

$0 – $63,000

15%

$47,025 – $518,900

$94,050 – $583,750

$47,025 – $291,850

$63,000 – $551,350

20%

$518,900+

$583,750+

$291,850+

$551,350+

Some special circumstances:

Surviving Spouse

  1. Exclusion: If you’re a surviving spouse and you sell your home within two years of your spouse’s death, you may qualify for the full $500,000 exclusion from capital gains tax. The same exclusion rules apply.
    • If you’re a surviving spouse Beyond Two Years, you can exclude up to $250,000 of capital gains from your gross income.
    • However, any gain beyond that amount isn’t automatically taxable. It depends on other factors.
  2. Step-Up in Basis: When a property owner dies, the cost basis of the property receives a “step-up” under federal law. Depending on the legal ownership of the property, this may mean at the time of your spouse’s death, the new cost basis is the fair market value of the property, and not the original purchase price.

Capital Improvements

The cost of home improvements that increase the value of the home, not just maintain value, may be added to the original purchase price to decrease capital gains. In general, you can’t include any costs of repairs or maintenance that are necessary to keep your home in good condition but don’t add additional value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware. However, you may include these costs if they are part of a capital improvement project.

Costs of improvements that add to the value of your home, prolong its useful life, or adapt it to new uses, may be added to the basis of your property. The following chart lists some examples of improvements.

 

Realistic Examples from Southern Frederick County:

Filer Type:

Married Filing Jointly

Married Filing Jointly

Single (Widower)

Single (Divorced)

Purchase Price:

$55,000

$254,960

$38,530

$177,000

Step-up

0

0

$333.495

0

Sale Price:

$560,000

$800,100

$600,000

$560,000

Capital Gains:

$505,000

$545,140

$266,505

$383,000

Exclusion:

500,000

$500,000

250,000

$250,000

Improvements:

$35000

$75,000

0

$65,000

Net Capital Gain:

$-30,000

$-29,860

16,505

$68,000

Capital Gains Rate:

N/A

N/A

0%

15%

*These examples are actual purchase prices; the rest of the numbers may be actual or reasonable estimates.

Of course, you will need receipts and documentation to substantiate the costs of these improvements. If you think you may need them, try reaching out to the company that performed the work to see if they can provide you with the information. Like decluttering and showcasing your home, gathering and organizing these receipts can be done long before you decide to sell, making the home sale and income tax season far less stressful.

I want to stress again: this is a highly complex tax topic, and we have only just covered the most common aspects of the law. I highly recommend that you consult a competent tax professional or refer to official IRS publications for specific guidance.  

If it would be beneficial to you to know the current market value of your home, offer a free service called a “Real Estate Review.” I can review with you the basis of the estimate and even provide a signed letter stating my opinion of the value.

I hope this has been beneficial to you. Please let me know how I can help you today.

Wednesday, June 19, 2024

Transform Your Home from “Just Another Listing”

Transform your home to be "Not Just Another Listing"
Welcome to the fourth and final installment of preparing for your home-selling journey! If you’ve been following along, you know that decluttering is the first ingredient of the secret sauce to making your home irresistible to potential buyers. In our previous posts, we explored the
Benefits and Roadblocks When Decluttering, and Overcoming the Difficulties of Decluttering. We examined specific methods for attacking clutter. In our last post, we even dipped our toes into the world of turning your home into a marketable commodity with strategies for showcasing your home for sale.

 Now, let’s dive deeper. Today, we’ll focus on specific areas of your home that can transform it from
“just another listing” to a showstopper that commands attention. So, grab your metaphorical paintbrush, because we’re about to create a masterpiece that will leave buyers saying, “Wow!”

But first, a quick recap: Decluttering isn’t just about tossing old magazines or hiding the laundry basket. It’s about creating space, flow, and a sense of calm. Buyers want to envision themselves living in their new home, so we want to depersonalize and neutralize the space and tastefully minimize the content of each space. 

Now, let’s embark on a room-by-room adventure, exploring creative ideas to transform each space into an irresistible home for potential buyers. 

Room by Room Enhancements

  1. Outdoors

    1. Curb appeal: Deep clean the outside. Obviously, the main entrance of the home as seen from the street is the priority. Pressure wash the siding, windows, gutters, sidewalk, porch, and deck to remove dirt and grime. Wash the windows inside and out and consider removing screens if they’re not in good condition.

    2. Landscaping: Tidy up your yard by removing clutter, debris, and dead leaves. Mow the lawn, rake leaves, weed, mulch, and trim overgrown trees and bushes. Clean out all the corners and under bushes. If you are still a year or more out from selling, consider a lawn care service to overseed, feed the lawn and kill weeds. Also remember when aggressively trimming back trees and bushes it may take a year or two for them to grow back attractively.

    3. Entryway focus:  This is the first-place potential buyers stop and look around. Survey the area to be sure it is attractive. This area should be immaculate. Consider polishing or replacing the door fixtures, such as the handle, kickplate, doorknocker, hinges, doorbell, and peephole. Be sure there is no rot around the door trim – I see this very frequently. Consider painting the door trim if cleaning is insufficient. A nice welcome mat is a thoughtful accent. If there is a garden, apply nice mulch. Finally, a floral touch such as a  pot of geraniums or other bright flowers near the front door to make the exterior feel alive and inviting.


  1. Foyer: The first glimpse of the inside of the home comes when you walk through the front door, so this first impression is of the highest importance. Here are some ideas:

    1. Open and Spacious: Keep your entryway open and spacious to create a better flow. Avoid clutter. Maybe add a mirror to make a smaller or darker entryway appear larger and brighter. 

    2. Purposeful Decor: Each piece you add should serve a purpose in creating an ideal environment. Avoid random items that add little visual impact.

    3. Lighting: A modern light fixture(s) can add elegance and style. Perhaps a table underneath it the light fixture with flowers would create an inviting atmosphere. Consider artistic lighting installations or simple yet chic options.

  2. Kitchen: After the foyer, the kitchen is usually where the home tour heads next and where most families spend the most time. This space is a critical place for attention to detail. 

    1. Clear Off Counter Space:

      1. Remove almost everything from countertops. Put away small appliances like coffee makers (unless there is a coffee nook), blenders, and toasters. Declutter the top of the refrigerator as well. Remove all magnets, notes, and pictures. 

      2. The goal here is to make your kitchen appear bigger, cleaner, and more streamlined. Be aware homeowners often become accustomed to their own clutter, making it almost invisible to them.

    2. Inside Pantry, Cabinets and Drawers:

When buyers inspect storage spaces, it’s essential to remove nonessential items and meticulously organize what remains. An orderly cabinet conveys a sense of spaciousness and calm.


  1. Update Hardware:

Dated cabinets can impact a sale. While replacing cabinets entirely might not be feasible, consider updating the hardware. Paint, new handles or knobs can give cabinets a fresh look.

  1. Floor Fixes:

Address any flooring issues. Repair or replace damaged tiles or floorboards. Clean and polish the floor to enhance its appeal.

  1. Windows That Wow:

Clean windows thoroughly to let in natural light. Consider adding sheer curtains or blinds to create an airy feel.

  1. Eliminate Clutter, Not Personality:

While decluttering is crucial, add a touch of personality. Set the table with colorful plates, napkins, and a fruit bowl. Consider unique planters with blooming flowers. 

Fresh or Faux Flowers:

Place fresh flowers or high-quality faux arrangements on countertops or tables. They add vibrancy and warmth to the space.

  1. Family Room: This room serves as a space where families can find solace and recover.” Many of our comforts are here. Ruthlessly decluttering and removing excess is critical. Pare Down Furniture:

Declutter by removing excess furniture. Professional stagers often take away up to half the furnishings to create a more spacious look. Ensure potential buyers can move around freely and access key features like the fireplace or built-in bookshelves. Avoid overloading the coffee table or the couch with pillows.

  1. Increase Lighting Everywhere:

Brighten up the family room. Adequate lighting is essential. Consider adding floor lamps, table lamps, or even pendant lights. Well-lit spaces feel more inviting and spacious. If practical, a strategically located mirror will reflect light back into the room.

  1. Depersonalize:

Remove personal photos, decor, and clutter. Buyers want to envision themselves in the space, so minimize family-specific items.

  1. Wall Styling:

Let buyers focus on the room itself. Create a “finished” look by paying attention to walls. Group similar art together and avoid excessive wall decor.

  1. Floating Furniture:

In smaller family rooms, consider floating furniture by pulling it away away from the walls. This creates visual breathing space and balances the room. Maybe choose scaled-down furniture for better proportions.

  1. Bedrooms: These personal sanctuaries witness our dreams, late-night reading sessions, and early morning stretches. Here are some tips to maximize their allure.

    1. Pay Special Attention to Your Bed:

      1. Choose the right-sized bed that fits the room’s scale; ensure there’s enough space for a nightstand on each side.

      2. Position the bed so that it faces the doorway and is immediately visible upon entering the room..

      3. Layer the bedding to make the bed a focal point. Neutral colors work best to evoke a sense of relaxation.

    2. Declutter and Clean:

  1. Thoroughly clean the entire bedroom. A clean space feels more inviting.

  2. Declutter by removing personal items, excess decor, and unnecessary furniture. Less is more when it comes to staging.

  1. Neutral Wall Colors:

Stick to neutral colors on the walls. These create a calming atmosphere and appeal to a broader range of buyers.

  1. Maximize Light:

  1. Natural light is best. Open curtains or blinds to let in as much light as possible.

  2. Consider adding strategically placed lamps to brighten darker corners.

  1. Strategically Arrange Furniture:

  1. Place furniture in a way that highlights the room’s flow and functionality.

  2. Less is more: If the bedroom is small, remove non-essential furniture to create a sense of spaciousness.

  1. Finishing Touches:

  1. Add subtle decor such as decorative pillows, a cozy throw, or a small plant.

  2. Ensure that the room feels welcoming and serene—a place where buyers can envision themselves relaxing.

  1. Bathrooms: These are yet other important rooms which buyers look at critically. Even if it is dated, attention to detail is important.

  1. Clean thoroughly: Start by deep cleaning the entire bathroom. A spotless space leaves a positive impression on potential buyers. If there is stubborn mold or mildew in caulk or grout, it is worth the expense to remove and replace it.

  2. Remove personal items: Remove toothbrushes, toiletries, and makeup from the countertop. Buyers want to envision themselves in the space, so depersonalizing is essential.

  3. Declutter and Organize: Remove excess items from countertops, drawers, and cabinets. Use mason jars or containers to store small essentials like cotton balls and hair bands. Storage areas should feel as though there is ample space. 

  4. Swap in a neutral, clean shower curtain: This will add visual interest and uplift the room’s color scheme.

  5. Enhance Lighting: Ample lighting is essential. Brighten the space by updating vanity lights with high-voltage bulbs or installing a backlit LED mirror.

  6. Add Inviting Touches: Invest in fluffy, white towels. Display them neatly to evoke a spa-like feel. Place a preserved boxwood plant for a touch of natural greenery without the need for watering. Consider replacing a boring mirror with one in an interesting shape or frame. Hang appealing artwork with calming themes like nature or abstract designs.

  1. Garages and unfinished basements: Finished basements should be treated like a family room. Use the same techniques to put your best foot forward.


Unfinished basements and garages should be just as clutter free and clean as anywhere else in the home, unless there are some special features that need to be showcased. 

Remember, when your home is listed on the market, it becomes a commodity to be sold, and it will no longer be your personal space. The art of showcasing your home lies in creating a neutral, appealing environment that allows potential buyers to envision themselves living comfortably in the space.

Our team is dedicated to providing exceptional assistance. Leveraging our unique perspective and expertise, we can help you clarify priorities and streamline processes, ultimately saving you valuable time and resources. Whether you need for sale-as-is, light staging support, professional advise, or comprehensive staging services complete with furniture and intricate details, rest assured that we’ve got you covered. 

Feel free to reach out by calling or texting me at 2301-873-2106, or you can email me at BReynolds@lNF.com. I would be very pleased to chat with you.

You can subscribe to this blog by clicking on the SUBSCRIBE button just under my picture on the right. That way, whenever an new article is posted, you will get an email notification.

Capital Gains Taxes on the Sale of your Home

This blog is primarily about helping people buy and sell homes. Earlier this year, I wrote a four-part blog on ideas for preparing your home...