Monday, March 30, 2015

Sold Your Parents’ Home in 2014? Check This Tax Advice

Q. We sold our parents’ home in 2014. What do we need to know for taxes this year?
A. The tax implications of a home sale can be complex, particularly when you’re selling a relative’s property rather than your primary residence. It’s always best to consult a professional tax adviser to get individualized advice, but there are some general tax tips that could apply to your situation.

Selling a home as an heir to the property

Your tax bill will vary according to how you acquired the property and when.

Recent inheritance. “If you inherited your home through a will or a trust and you sold it right away, you won’t have to pay a capital gains tax,” says Pat Simasko, owner of Simasko Law in Mount Clemens, MI.

Your residence. If you’ve lived in the property as your primary residence for at least two of the past five years, then you would be eligible for a capital gains exclusion up to $250,000 (single tax filer) or $500,000 (married couples filing jointly), says Simasko.

Investment property. On the other hand, if you’ve kept the home for a few years, you could owe taxes on your profit from the sale if you haven’t claimed it as your primary residence, Simasko says. This situation applies whether the home has been empty or you’ve used it occasionally.

Heirs who sold their parents’ home without having lived in it—but did not do so immediately after the property was inherited—will have to determine the “basis,” or value of the property, for tax purposes, says Vanessa Borges, an enrolled agent and tax preparation supervisor at Tax Defense Network in Jacksonville, FL. Next, you subtract the basis price from the sales price to determine whether you have a profit or a loss.

The good news is that beneficiaries typically have a “stepped-up” basis for a home, which is the property’s fair market value at the date of the parents’ death, says Borges. When you sell that property, you pay taxes only on gains over that basis, not the original price of the home.

For example, if your parents purchased their home for $50,000, but the property value when they passed away was $100,000, you would pay capital gains taxes only if you sold the house for more than $100,000. If you keep the house for years and then sell it for $200,000, then you would owe capital gains taxes on the $100,000 profit, says Borges.

Selling a home when your parent moves to assisted living

A similar situation applies if one of your parents has already passed away and the other recently moved into assisted living.

“If one of the parents is deceased, the surviving parent receives the ‘step up’ in basis at the time of death,” says Borges.

If you sold the home on behalf of your parent, then the parent would be responsible for paying a capital gains tax on that stepped-up basis.

Simasko says, though, that your parent may owe extra taxes depending on how long he or she has been in assisted living.

“The city or the county where the house is located can claim the house as ‘nonhomestead,’ considering the parent’s primary residence is the assisted-living facility,” says Simasko. “The taxes could be higher, because the property would be considered a second home.”

Selling a home when the property has been transferred to your name

Borges warns that there are multiple tax and financial implications for transferring property from parent to child. For example, the child might owe transfer and gift taxes when the transfer is completed. There can be an inheritance tax owed on the percentage of the property being transferred to a child or children after death, as well as capital gains tax, if the child hasn’t been living in the property for two of the past five years.

As you can see, the tax impact of selling your parents’ home can be complicated, so it’s always wise to consult a tax adviser familiar with your state laws, IRS regulations, and your finances.

If you have a need for a real estate professional, please contact me. I would also appreciate your vote of confidence by passing my name to anyone you may know who would benefit from my services.



Monday, March 16, 2015

Managing the Details

Once you have negotiated a contract and agreed on a sale price, the next phase of the home sale job begins.

Below is a list of some of the details your agent will manage through this process.

They will constantly check with the title company to assess when they need additional information and whether there will be any problems that could affect obtaining title.

They will ensure that both you and your Buyer receive copies of all documents pertaining to the transaction. They will have the Buyer sign to acknowledge that he/she has received his/her copies.

They will make sure that the Buyer meets and removes all contingencies within the time limit provided or get an extension, if needed, signed by both you and the Buyer.

They will keep you abreast of the Buyer's application for a loan and the progress of the appraisal on your home.

They will work with the appraiser to arrange for entry to the property and to answer any questions he/she may have about the home or neighborhood. I wil also provide the appraiser with the most recent comparable sales in the area.

They will make sure that the Buyer increases their deposit in a timely manner.

They will coordinate and attend as many inspections as possible and keep you informed of all findings.

Once the inspections are complete, they will negotiate for you if any problems arise.

They will cooperate with the Buyer and others involved ensuring that corrective work is completed according to the terms of the contract.

They will ensure that all documents are ordered and drawn, including your loan pay-off and insurance for the Buyer.

They will do their best to have your closing papers drawn one week before Close of Escrow (COE) so that if any problems arise, they can solve them while remaining within the time frame you expect.

If you prefer, they may be able to deliver your escrow check to you personally as well as coordinate move-in dates and key exchanges.

If you have a need for a real estate professional, please contact me. I would also appreciate your vote of confidence by passing my name to anyone you may know who would benefit from my services.


 408.687.2026   Julie@JulieWyss.com   www.JulieWyss.com

Monday, March 2, 2015

The Purchase Agreement

You've found a home you love and you're offer has been accepted. Now what?


Your agent will use a standard form of Purchase Agreement, developed by the Association of Realtors ® , a local Association of Realtors ® , or a private publishing company, depending on the custom in the area. You can make changes – but the seller must agree to each of the changes you make.

In the United States, oral contracts are not enforceable – real estate contracts must be in writing. Even if you give me, your agent, permission to bargain on your behalf, I must have a Purchase Agreement signed by all buyers before I can present your offer.

When you read the Purchase Agreement, try to imagine yourself as an independent party who has no knowledge of the transaction other than what’s included in the contract. Is the meaning of each clause clear? For example, to avoid miscommunication list all personal property you expect to be included in the transaction. Also, it’s a good idea to stipulate the exact date and time of possession – if you’re not specific, you and your moving van could arrive and find that the seller still inside the home!

Specify in the contract that the seller is obligated to repair any damage (along with the conditions causing such damage) noted in the pest control report and the reports of other inspections.

Elements in the Purchase Agreement


Sales Price
Self-explanatory, but still the most important term.

Earnest money
Along with your Purchase Agreement, you will submit earnest money to demonstrate your seriousness about the home.  “Earnest Money” is generally between 1% and 5% of the purchase price. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal against the terms of the contract, you may have to forfeit the entire amount.

Title
"Title" refers to the legal ownership. The seller should provide title, free and clear of claims by others not acceptable to you, the buyer. Title insurance will assure that the home is free of "unacceptable liens" or "encumbrances."  It’s negotiable who will pay for the title insurance policy.

Mortgage Clause
A clause which specifies that the obtaining of a mortgage loan on the property on terms and conditions acceptable to you is a condition of the sale, and provides for the refund of your deposit if you fail to get the mortgage loan.

Pest Inspection
This clause provides for a pest control inspection and report by a licensed pest control operator. Sometimes sellers will provide this report prior to the purchase agreement. If not, it provides for a method of allocating whether seller, buyer or both will pay for the repairs disclosed by the report. Your lender may require a certificate from a qualified inspector stating that the property is free from termites, pests and dry rot.

Home Inspection
I strongly recommend an inspection and written report by a home inspector who is a licensed general contractor to determine the condition of plumbing, heating, cooling and electrical systems, the structure of the home, the grading, roof, siding, windows and doors. Most buyers prefer to pay for inspections (generally between $300 - $500) so that it’s clear that the inspector is working for them, not the seller. I also strongly recommend that you request any such additional inspections as may be recommended by your home inspector, such as a separate roof inspection, foundation or soils inspection, pool inspection, etc. These additional inspections may reveal conditions or defects beyond the ability of a general home inspector to ascertain.

Other Disclosure and Inspection Terms
See the section on "What you need to know" for a detailed discussion of these disclosure and inspection items.

Contingencies
You can specify, in your Purchase Agreement, that certain conditions must be met before the sale goes through. Contingencies are crucial, so be sure to speak up and tell me what’s important to you, so that all of your concerns are reflected in the offer. They may include:

Your ability to obtain specific financing from a lending institution. This contingency will ensure that if you can’t find the loan, you will not be bound by the contract.
That the home inspector you hire provides a satisfactory report within 10 days (for example) after the seller accepts your offer. With the proper contingency, if the report does not satisfy you, the contract becomes void.

The sale of your existing home.

Obviously, in a slower home sale market, sellers are more willing to accept contingencies than they are during more active circumstances. Too many contingencies in a strong real estate market may prevent your offer from being accepted. Make sure your contingencies are clear.
Earnest Money
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show "good faith." The real estate agent usually holds the deposit, the amount of which varies from community to community. This amount will become part of the down payment.

Escrow Company
In most instances, the buyer will select the escrow company which is also the title company providing the title insurance policy after close of escrow. In some counties where the custom is for the seller to pay for the title insurance policy, the seller will select the escrow and title company.

Closing Costs
You can negotiate which closing costs you will pay and which will be paid by the seller. However, be aware that longstanding custom regarding the handling of the allocation of these costs makes many of them hard to negotiate on terms different from local custom. If a seller was obligated to pay a certain closing cost when he or she bought the property, they will expect you, the buyer, to pay the same cost on your purchase. See the section on "Who Pays What?" which details these cost allocations in the area we serve.

Withdrawing an offer
In most cases the buyer may withdraw an offer right up until the moment the offer is accepted. Consult us as to the best and safest way to withdraw your offer.

The seller’s response to the offer
You will have a binding contract if the seller, upon receiving the written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as the signed offer is delivered to you or me, your agent. If the offer is rejected, then the offer is no longer valid. If the seller likes everything except the sale price, or the proposed closing date, or the terms of your offer, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject the counteroffer, or even to make your own counteroffer.

Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal and that final, unchanged document is delivered to the other party or their agent.

How the seller may counteroffer
The buyer and seller can negotiate and agree about any of the terms, conditions, costs and who pays for them. Some terms and conditions that are negotiable include:

  • Termite inspection fee and costs to repair any damage
  • Closing costs
  • Points to the buyer’s lender
  • Buyer’s broker
  • Repairs required by the lender
  • Repairs of conditions or defects disclosed by the seller, uncovered by inspectors, or required by governmental agencies
  • Date for the close of escrow
  • Date and time for possession by buyer
  • A holding over, or rent back, by seller after close of escrow
If you have a need for a real estate professional, please contact me. I would also appreciate your vote of confidence by passing my name to anyone you may know who would benefit from my services.