Real Estate
One Time Tax Exemption on the Sale of Your Home? Not Anymore
Real Estate America Foy
The over-55 home sale exemption was superceded by provisions in the 1997 Tax Reform Act. This act raised the amount of excludable gain to $250,000 per taxpayer, and also allowed for more than one exclusion per taxpayer per lifetime. As a result, single sellers are able to exclude $250,000 in gain each time they sell their primary residence after living in it for more than two years. Couples who file together are able to exclude $500,000 in gain from the sale of their primary residence after two years.
At a recent listing appointment, the owner who’d had the home for many years as her primary residence asked me the following question for which I did not have an immediate answer: “Is there a one-time exemption from capital gains on the sale of your primary residence?”
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
Although such questions are best asked of accountants, I hustled back to my office and did some research. I discovered that there was once a one-time exemption for homeowners above the age of 55 with a one-time capital gains exclusion. Individuals who met the necessary requirements could exclude up to $125,000 of capital gains on the sale of their personal residences. The exclusion was intended to stimulate the real estate market and reward homeowners for their purchase and subsequent sale.
• lived in the home as your main home for at least two years (the use test).
• owned the home for at least two years (the ownership test) and
If you can exclude all of the gain, you do not need to report the sale on your tax return. If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040). Don’t think you can only use this exclusion if you own a single family, traditional house. The act applies to any dwelling that you consider your primary residence, such as a house-
boat, condo or townhouse, cooperative apartment, or a mobile home. If you realize more than $500,000 in gain—which you may if I’m selling your house!—the excess gain will be subject to a significantly lower capital gain rate of 15% instead of the 25-31% capital gains tax on investment property gain. If you’re interested in deferring taxes on the capital gains realized on the sale of investment property, check into 1031 exchanges. In a nutshell, a 1031 exchange is when the seller of an investment property defers their capital gains taxes on the sale, provided they buy another property or properties to hold as investment. A basic premise of a 1031 exchange is that the taxpayer who sells relinquished property must be the same taxpayer who buys replacement property. This usually means that the vesting is the same for both the relinquished and the replacement properties. For example, John Doe’s name is on title to both properties involved in the 1031 exchange. America Foy is a top producing real estate agent with Bay Sotheby’s International Realty in Oakland. Email him at americafoy@ gmail.com Follow him on Facebook (America Foy), Instagram @americafoyrealtor or Twitter @americafoy
SF Real Estate Market Forecast
Real Estate George Langford 2014 was another strong year for real estate in San Francisco, if not one of the strongest we have ever seen in terms of home appreciation and the amount of buyers actively in the market. This is due, in part, to the lack of housing units available for sale. Homes were not built fast enough to keep up with the demand. The combination of low inventory and historically low interest rates then contributed to the appreciation we have seen here in the city and throughout the Bay Area. Recovery from such a scenario usually takes about three years, but it looks like San Francisco’s recovery will take just one and a half to two years time. We are also now in the second phase of a typical two-phase cycle. During the first phase, cash and investment buyers tend to dominate the market. During the second, we see more buyers purchasing with financing. Outlook for Buyers Although there is no crystal ball that can predict what will happen with certainty, interest rates are expected to rise, but will stay modest from an historical perspective. I’ve always advised buyers: “If you can afford to buy something now and if the purchase makes sense, then buy it. Don’t wait for a ‘slow down’ or rates to shift, as you might miss an opportunity, or even get priced out of the market.” If interest rates do rise while housing prices level off or continue a modest
appreciation, the monthly cost of a home could be the same as it is now. Base your decisions on what we know now, rather than on what might happen. The first part of the year should continue to see multiple buyers bidding on a given property. A modest rise in prices is also expected, although the days of 20+ offers and 25 percent over asking will become a thing of the past. Outlook for Sellers We have seen one of the strongest home value recoveries in history. Year after year, gains in home values have been fueled by low interest rates, lack of housing units, higher consumer confidence and a lower unemployment rate. This creates an ideal scenario for sellers, but not for buyers over time. With the Federal Reserve beginning to talk about raising interest rates during the middle or end of this year, we will begin to see a shift in the market. Although we won’t see a leveling off, we will see a market that will begin to balance between buyers and sellers. If you are thinking about selling, now is the time. If you have outgrown your current home and are thinking about moving up, your time is just around the corner. San Francisco Hot Spots Location, location, location has always held true when purchasing real estate. We have seen home prices rise the fastest in areas more centralized to downtown. As buyers become priced out of these neighborhoods, they look to up-and-coming neighborhoods still within San Francisco. We have already begun to see a change in the dynamic of areas such as Mission Bay, Bayview, Ingleside and Crocker.
“The Shipyard” (Candlestick Point) is undergoing one of the largest redevelopments since what occurred in the Sunset. Although the aforementioned areas tend to attract more visionary buyers, this could evolve into something truly amazing, as we saw when the Mission Bay neighborhood previously went through redevelopment. What is needed to balance the market? I don’t want to be the bearer of bad news, but we need interest rates to rise a bit. We are seeing a flood of buyers in the market and, although there is an aggressive building boom, this will only make a small dent in relieving the supply versus demand problem. An often forgotten, yet important sector, of our real estate market are the sellers that want or need more home space. A gradual increase in interest rates could lead to more of these so-called “move up” sellers. That’s because recent years’ markets have been so strong that they have left some sellers sitting on the sidelines who would like to “move up,” but do not do so because of uncertainty in finding a replacement property. When the confidence of these sellers rises, such that they can sell their current home and find a replacement property, it will help to increase inventory and relieve some of the competition for buyers. George Lang ford is a senior sales associate at CLIMB Real Estate group in San Francisco and is the founder of SevenSquaredSF.com Let his expertise guide you to your new home, or help you to get the best price for your current one. To contact George, please phone 415336-8191 or e-mail him at lang ford@ climbsf.com
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“Kiss for the Bay Times” Photo Exhibit Opening Saturday, February 14, 4-7pm Sweet Inspiration, 2239 Market Street BAY T IM ES F EBRUARY 5, 2015
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