What are the rules for avoiding capital gains taxes when selling a home?

 When selling a home, individuals don’t have to pay capital gains taxes on the first $250,000 0f their profits (or up to $500,000 for married couples) provided that two conditions are met.  First, you must have owned and lived in the home for at least two of the past five years.  In those two years the home must have been your primary residence.  Second, in the two years prior to the sale you must not have sold another house and taken advantage of the same tax exclusion.  If both of these conditions are met, your first $250,000 of profit (or $500,000 if you are married) is tax free. 

The IRS does allow for some leeway in these rules.  For example, if you lived in the home for less than two years, but are forced to move because of your job, health, or certain other unforeseen circumstances, you may be able to claim a partial exclusion.  Check with your tax advisor for details. 

Have a tough real estate question or a question about Lake Norman area real estate?  I am only an e-mail or phone call away: 

Todd Kreps   704.564.6941

What happens if the appraisal for the home I’m buying comes in lower than the purchase price?

Hopefully your agent has put in the contract a provision that deals with this eventuality and your lender has hired an appraiser that is experienced in the type of property you are buying. (A waterfront home needs to be appraised by an appraiser that understands the unique characteristics of this type of property.)  Since you cannot get a loan for more than the appraised value, and the seller will have a difficult time finding another buyer who is willing to pay more than the home is worth, it s in the best interest of both of the parties to try to work the situation out.  Normally, you would try to get the seller to agree to a lower price that would match the appraisal.  If the seller balks at this idea, and you absolutely love the house, you can consider paying the difference between the purchase price and the appraised value in cash, through a higher down payment.  If you are not in a position to do this, the only remaining option is to cancel the contract and look for another home.  But, again, this must have been clearly spelled out in the contract in the very beginning so that you don’t lose your earnest money deposit.

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What is title insurance and why do I need it? Abraham Lincoln lost his home twice to problems with the title.  The purpose of title insurance is to help you avoid the same fate.  Simply put, it insures you and your lender against errors or potential problems with the ownership documents of your home.  For example, if someone was to claim to be the rightful owner of your home, the title insurance protects you against possible loss or damages.Two types of title insurance are available.  The lender’s policy protects only the lender from title defects, liens or judgments.  The owner’s policy protects the buyer against the same problems, and can be expanded to cover additional title risks, such as unrecorded liens. A lender’s policy is required to obtain a mortgage.  An owner’s policy is not, but since it’s only slightly more expensive than the lender policy, buying it is certainly not a bad idea as it gives you added peace of mind.

Have a tough real estate question or an inquiry about Lake Norman real estate?  Your calls and e-mails are always welcome.

ToddKreps@StonePropetiesNC.com     704.564.6941