5-minute read
If you are in the housing market or intending to enter, then several questions linger in your mind. You ask yourself whether the prices will go up soon. You also wonder whether the market will crash, and you will take a loss. Last, you ask yourself whether the market condition will favor your market entry.
The housing market conditions depend on several factors. What do you need to know?
Should I sell my personal residence?
You might think that selling your residence when there is a market bubble will give you the most out of your sale. Such decision results from active participation in following the real estate market trends. However, trends are not enough to secure you an optimum capital gain from your residence.
Ask yourself, have I lived in my house for over two years as a married person? Do I submit a joint return to the IRS? If yes, then you can avoid the payment of capital gains tax for up to $500k in profits. So, if your residence will give you profits lower than $500k, then you may opt to wait.
- If you are single and have lived in your residence for over two years, IRS will not tax up to $250k of your sale profits. However, the loss from selling your home is not deductible.
- If the prices in the housing market are high now, then you will pay a high price when re-buying a house now. However, you will set your capital gains even higher.
A housing market that has a demand for value-add opportunities enables you to avoid the renovation and remodeling costs. Not only can you save the costs, but you can also claim a repair credit after selling your house at a cheap price.
Is there a tax break in the housing market? Then, take advantage of the benefit because you do not know when the break will end. If possible, then you can sell your house and get another one at a cheaper rate.
Will there be taxes?
Yes. The excess of $250k and $500k for a single and married person respectively attracts a capital gain tax.
If you had deducted the allowable amounts from the sale of another house within two years before the sale of your latest house, then you are not eligible for another deduction.
Remember, you cannot offset capital losses with capital gains when selling personal property.
Special circumstances
You can claim for a capital gain exemption when you sell a house you got as a divorce settlement. The time that your former spouse counts in the two-five-year test.
The time that you spent away from your house, as a member of the uniformed services, because of duty calls qualifies in the two-to-five-year test.
Those that sell a home because of a change of employment or health or any unforeseen circumstances can also claim a reduced exclusion without passing the two-five-year test.
Does it make sense if I'm going to re-buy at the top again?
Yes. It makes sense to re-buy at the top again.
- First, you have ready cash. Thus, the owner of the house would prefer to sell to a prepared buyer rather than scouting for one.
- Second, you are likely to get a quick-to-move seller, thus buying a home at a cheaper price.
- Last, now that you have ready cash in your bank account, you can set the amount you want to spend for a home rather than looking for money to get enough for your preferred house.
Summary
Selling a residence depends on several factors besides a bubble in the real estate market. Consider the capital gains tax and how you can reduce it. Also, consider the associated costs. However, re-buying, when the market is at the top, has its share of advantages that makes it convenient to own a residence.
It is time to test your position and make the best decision as a housing market player.