First off, let’s talk about IRS code section 121. That is the wonderful law that allows a married couple to eliminate tax on the first $500,000 of gain on selling a qualified personal residence ($250,000 for single folks). “Qualified” means you must have lived in the home as your personal residence for at least two of the last five years.
Here is a planning tip for you. If you lived in a home for at least two years and one day, you don’t have to sell it right away to still qualify for section 121 gain elimination. Maybe the real estate market is down temporarily, or maybe you have a temporary job outside of the country and you’re not sure if you’re coming back soon or not, etc.
Here's another important consideration. Who do you list your house to sell with? Just about every real estate agent uses the Multiple Listing service. That means every agent in the country can look up your house. There might be an agent in some city on the other side of the country helping their client find a home in your area.
I’ve found that it helps if you hire an aggressive agent who has a lot of contacts (investors looking for the right property) who will do more than just list your home and wait for a buyer to show up, they work the phones and other media to promote your home to a potential buyer. Be prepared to give up about 5-6% of the gross selling price for your agent’s commission. On a $500,000 home, that is a commission of at least $25,000! Find somebody who will work hard to earn that.
Another idea is finding a home to buy. Once again, find a good real estate agent to work for you. It costs you NOTHING! They get half of the commission on the house you buy. Spend some time with that agent making sure they really understand your tastes, lifestyle, etc., and then turn them loose to find some homes to look at in the price range you have specified.
Regarding record keeping, you should have a folder for the house you are selling that you have put all paperwork in for original purchase, upgrades, and improvements. Your tax preparer will need that to prepare your tax return in the year you sell your home.
There is a one- or two-page summary sheet when you buy/sell a home called an escrow sheet. It lists all the related financial pieces of the sale/purchase. Make sure you have that for when you purchased your home that you are selling and another one for when you sell it.
Oh and by the way, when you move into your new home, start that folder now. Put the purchase escrow summary sheet in that folder as a beginning point.
I’ve just scratched the surface of topics to discuss, but hopefully, this will help some folks.
Have you heard? Psalm 84:3a says, “Yes, the sparrow has found a home, and the swallow a nest for herself, where she may have her young.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.