Capital Gains Taxes?

Capital Gains Taxes?… How to Sell a Home Without Paying Capital Gains Tax: What Home Sellers Need to Know

If you’re planning to sell your home, you may be wondering how to avoid capital gains taxes. Understanding the rules and available exemptions can save you thousands of dollars and help you keep more profit in your pocket. While taxes can be complex, there are clear ways you can reduce or eliminate your capital gains liability when selling a home. In this blog, we’ll break it all down in plain language, focusing on what homeowners in Clifton, NJ, need to know.

Before we begin, a quick disclaimer: This blog is for informational purposes only and does not constitute tax, legal, or financial advice. Always consult a tax professional, CPA, or attorney for guidance specific to your situation.

What Are Capital Gains Taxes?

When you sell a home, the IRS considers the profit you make from the sale as a “capital gain.” A capital gain is simply the difference between the amount you paid for the home (your cost basis) and the amount you sold it for (your sale price).

For example:

If you bought your home for $200,000 and sold it for $400,000, your capital gain is $200,000.

Capital gains are taxable, but there are exceptions and exclusions specifically designed to help homeowners reduce or eliminate these taxes.

The Home Sale Exclusion Rule

The good news for homeowners is that the IRS offers a generous Home Sale Exclusion, also known as the Section 121 Exclusion. This rule allows you to exclude up to:

$250,000 of capital gains if you are a single filer.
$500,000 of capital gains if you are married and filing jointly.

For many homeowners, this means you may owe no taxes at all on the sale of your primary residence. However, you must meet certain criteria to qualify for this exclusion.

How to Qualify for the Home Sale Exclusion

To claim the exclusion, you must meet two key requirements:

Ownership Test: You must have owned the home for at least two years during the five years leading up to the sale.
Use Test: You must have used the home as your primary residence for at least two of the last five years.

If you meet both the ownership and use tests, you can take full advantage of the exclusion limits.

Example: Let’s say you bought your Clifton home for $300,000 and sold it for $600,000. If you are a married couple filing jointly, you can exclude up to $500,000 of the gain. That means you won’t owe any capital gains taxes because the $300,000 gain is fully excluded.

Partial Exclusion for Special Circumstances

If you don’t meet the full ownership and use tests, you may still qualify for a partial exclusion of capital gains. Special circumstances include:

A job relocation (moving more than 50 miles away).
Health-related reasons.
Unforeseen events, such as divorce or natural disasters.

Even if you’ve only lived in your home for a short time, it’s worth exploring whether you can claim a partial exclusion.

Example: You lived in your home for just 18 months before accepting a job relocation. While you don’t meet the two-year requirement, you may still qualify for a prorated exclusion based on the time you lived in the home.

How Improvements Impact Your Capital Gains

Did you know that home improvements can reduce your taxable gain? The IRS allows you to add the cost of qualifying capital improvements to your home’s cost basis. This effectively reduces the amount of your capital gain.

What Counts as a Capital Improvement?

Capital improvements include any upgrades that:

Increase the value of your home.
Extend the useful life of your home.
Adapt your home for new uses.

Some examples include:

Adding a new roof, deck, or swimming pool.
Installing a new HVAC system or windows.
Renovating the kitchen or bathrooms.
Adding a home office or converting an attic or basement into living space.

Example: You purchased your home for $250,000 and spent $50,000 upgrading the kitchen and adding a deck. When you sell the home for $400,000, your cost basis is now $300,000 ($250,000 purchase price + $50,000 improvements). This reduces your capital gain to $100,000 instead of $150,000.

Keep Records of Improvements

To take advantage of this rule, keep detailed records of all improvements, including receipts, invoices, and permits. This documentation will be invaluable when calculating your cost basis and minimizing your taxable gain.

Pro Tip: If you’re planning to sell your home in the next few years, consider making strategic upgrades that not only boost your home’s value but also reduce your taxable gain.

Avoiding Capital Gains Taxes When Selling an Inherited Home

If you’ve inherited a home, the capital gains calculation is different. Instead of using the original purchase price as the cost basis, the IRS allows you to use the home’s fair market value (FMV) at the time of inheritance.

This is called a stepped-up basis, and it significantly reduces your capital gain.

Example: If your parents bought a Clifton home for $150,000 years ago and you inherit it when it’s worth $500,000, your cost basis is now $500,000. If you sell the home for $510,000, your capital gain is only $10,000.

This rule is particularly helpful for heirs who plan to sell an inherited property quickly.

Special Note for Multiple Heirs

If multiple people inherit a home (e.g., siblings), the stepped-up basis applies proportionally to each heir’s share. For example, if you inherit half of a $500,000 home, your stepped-up basis is $250,000.

Strategies for Reducing Capital Gains Taxes

If you anticipate a significant capital gain on your home sale, here are additional strategies to minimize your tax liability:

Timing Your Sale: If you’re close to meeting the two-year ownership and use tests, consider delaying the sale to qualify for the full exclusion.
Renting Before Selling: If you’ve used the home as a rental, you may still qualify for the exclusion if you meet the ownership and use tests.
Offset Gains with Losses: You can offset capital gains with losses from other investments (known as tax-loss harvesting).

Consult a Tax Professional

While there are clear strategies for avoiding or minimizing capital gains taxes, every homeowner’s situation is unique. Tax laws are complex and constantly evolving, so it’s important to work with a qualified tax professional or CPA. They can help you:

Calculate your cost basis accurately.
Determine your eligibility for exclusions.
Plan your sale to minimize taxes.

At Sanchez Realty Group, we specialize in helping homeowners navigate the selling process in Clifton, NJ, and surrounding areas. While we can’t provide tax advice, we can connect you with trusted local professionals who can.

Final Thoughts

Selling a home without paying capital gains taxes is possible if you take advantage of the IRS rules, exclusions, and deductions available to you. By understanding the Home Sale Exclusion, tracking your capital improvements, and working with qualified professionals, you can keep more of your hard-earned profits.

If you’re thinking about selling your home in Clifton or Fairlawn, NJ, the team at Sanchez Realty Group is here to help. We’ll guide you through every step of the process and ensure you have the resources you need to make informed decisions.

Ready to Sell Your Home?

Contact Roberto A. Sanchez and the team at Sanchez Realty Group today. Let us help you make your next move with confidence and clarity!

Co-Signing Gone Wrong

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Co-Signing Gone Wrong

Co-signing Gone Wrong

We did a short webinar with Marlon (The Kreditmogul), Marlon, who is very knowledgeable on credit restoration and have helped me and other people to restore their credit score to the levels that are acceptable and allow creditors extend better terms when it comes to personal purchases (car loan, mortgages to purchase a home, etc) and Co-signing gone wrong for would be home buyers.

Having credit allows people not just get better with their financials because credit is just about everything nowadays, right? We need to have credit so that we can purchase stuff, we need the credit, even for other things like applying and being considered for job opportunities and obtain positions where the integrity, character and responsibility of the person is important.

There are 3 parts of this webinar that we hope to help people with understanding the ramifications of each of them and how it affects their credit but most importantly their long term financial health and how to keep their credit file in good standing, this one is about a Co-sigining gone wrong, listen up.

Why You Should Think Before You Co-Sign

The first is about being a CO-SIGNER on a loan and how doing Co-signing can go wrong! I know it sounds great. You know, that we have family and close friends of ours that might want us to help them, but it can also be a risk because the reason why I say that is that if something happens, we become a co-signer for our primary account. Yes, you are also held just as 100%, follow me 100% responsible as the primary, right. So whatever reflects on that primary reflects also on the secondary, which is the co-signer.

So the same liabilities are shared under the same roof guys. So be careful with co-signer. It could be as, as good tempting, but it could also be a trap for anyone who does not understand the ramification, just don’t do it and realize the consequences that can come behind that. I always share with people what I went through myself, but I always want to help people understand you can do it on your own and could be where you need to be as far as, getting qualified for an approval for auto loan, eventually a mortgage or personal debt of that nature that fall in that category without even having a cosigner, it’s all about just re-building your credit and getting yourself established and then going out there and doing it the right way. Okay. So that’s what I would share about cosigner. Be careful.

What Other Have Found About Being a Co-Signer on a Car Note, Consumer Debt, Mortgage, Etc

Being a Cosigners is a very delicate thing to do, especially when you cosign for people that are not directly in your circle, like a close family member or someone like that, you must be very careful, and you must know the person. I find a lot of people in my real estate practice that they want to purchase a home, but they were a co-signer for a friend and what happens is that the friend wasn’t as responsible the person thought he was, and then he goes out or she goes out and sign up for a vehicle for this person, and then all help break loose. I mean, the person has an accident, get sued, they take the car away and as would find out, the debt they don’t take away, the debt still got to get pay some kind of way and if you’re the cosigner, then now you are responsible for all these liabilities.

Lots of people have come to find out the hard way that being a cosigner is not something that you, you should think or take lightly. I mean, it’s something that maybe you can do for your daughter or son, your mom or, or somebody very close that you know is not going to get you in trouble and it’s going to be able to pay their debt and even when you do it like that, you have, you have to know that there’s certainly a degree or level of responsibility on your part, because if something happens to that person and you want to keep your credit profile in good shape, then you’re going to probably have to take over that debt eventually, Find out how you can improve your credit and be able to purchase a home hopefully without the need of a co-signer.

Call/text or email me for a FREE, Consult: Roberto A. Sanchez 973-216-1945 Rsanchez@robsrealtor.com

Call/Text or Email Us for an Accurate, No-Guesstimates Value of your Property, How to Buy Property, Your First or Move up/down or Invest in Real Estate

Sanchez Realty Group at United RE: 973-216-1945 or Email: rsanchez@robsrealtor.com.

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Small Income Property Analysis

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Small Income Property Analysis, Investment analysis methods.

Small Income Property Analysis and Investment Property Analysis Methods.

As a real estate professional, we also assist home buyers and investors interested in purchasing multi family properties for the purpose of creating passive income through rentals and create equity over time or through different means this Small Income Property Analysis information video could assist you with the basics to make a better informed purchase.

There are several approaches and analysis methods investors utilize to make sure they’re making a sound decision and the property meets their investments objectives whether they’re smaller investments, 2-4 units or larger properties.

I’m Roberto Sanchez with United RE and the Sanchez Realty Group, I’ll explain some of the most common methods use to analyze a property in frankly a few moments.

For the Sake of this illustration will use a 2 Units property with a purchase price of $300,000 and Rental income of $3,000 a Month.

The first analysis method commonly used is the:

1^st Net Operating Income:

Gross Rental Income – Operating Expenses

Ex: $3,000 x 12 months – $11,000 = $36,000 – 11,000 or $27,000 NOI (Before Mortgage)

2^nd Cap Rate:

Net Operating Income / Total Purchase Price

Ex: $27,000 / $300,000 = 9%

3^rd 1^st One Percent Rule:

Monhly Gross Rent >= 1 % of Total Purchase Price

Ex: $3,000 >= 1% of $300,000 = $3,000

4^th Net Income After Mortgage (NIAM)

NOI – Mortgage or Finance costs

$27,000 – $12,900 (Principal + Interest) = $14,100

4^th Cash on Cash Return (CoCr or COC):

Net Income After Mortgage / Down Payment

Ex: $14,100 / $75000 = 18% COC

Other Methods are:

The Gross Rent Multiplier:

Total Purchase Price / Yearly Gross Rent

Ex: $300,000 / $36,000 = 8.3

The 50% Rule:

It estimates the NOI at 50% of Gross rents

Ex: $36,000 yearly GR x 50% = $18,000.

I look forward to assist you with your investment purchasing needs, having a real estate professional and season investor might be your best asset in achieving your wealth building plans and remember you have to have a plan to succeed or plan to fail but I’d add a plan without execution is a failed plan.

Reach out by phone or email: Roberto A. Sanchez 973-216-194 Email: rsanchez@robsrealtor.com

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Clifton RE Market – May 2021

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Clifton RE Market – May 2021 vs May 2020

Clifton RE – May 2021

(According to the GSMLS in Clifton)

Clifton RE May 2021

Single Homes SOLD (Incl, Condo/Townhomes, Active Comm Homes): 59 Homes

Median SOLD Price: $ 420,000

Days on Market: 14

Sale to List Ratio: 104.2

VS

Clifton RE May 2020

Single Homes SOLD (Incl, Condo/Townhomes, Active Comm Homes): 37 Homes

Media SOLD Price: $ 380,000

Days on Market: 19

Sale to List Ratio: 100.6

INCREASE: 10%

May 2021 continues to show strength in the Real Estate market, although this report is based on the Clifton RE, most towns in North New Jersey are experiencing the same surge in prices and it does not look like the lack in available homes will ease up the buyers demand and desire to land a property under contract creating multiple offer situations and therefore moving prices higher.

REMEMBER: RE is about the 3 P’s; Presentation, Promotion(Exposure) and Price.

Call us for a FREE, NO OBLIGATION consultation.

Roberto A. Sanchez

973-216-1945

May STATS according to New Jersey Multiple Listing Service:

As the weather warms and pandemic restrictions ease across much of the
country, the U.S. housing market shows little sign of cooling. Robust buyer
demand, fueled by low mortgage rates, continues to outpace supply, which
remains near historic lows. Nationwide, inventory remains much lower than it was
at this time last year, and sales prices are surging as a result.

• Single Family Closed Sales were up 39.2 percent to 1,105.
• Townhouse-Condo Closed Sales were up 125.1 percent to 493.
• Adult Communities Closed Sales were up 180.0 percent to 14.
• Single Family Median Sales Price increased 16.5 percent to $555,000.
• Townhouse-Condo Median Sales Price increased 2.9 percent to $360,000.
• Adult Communities Median Sales Price decreased 7.9 percent to $327,000.

With such limited supply of existing homes to purchase, all eyes are on home
builders to provide a much-needed boost of inventory to the market to help meet
buyer demand. However, increasing material and labor costs, along with supply
chain challenges, have contributed to significantly higher construction costs, with
builders passing these costs on to homebuyers. And while the warmer
temperatures, rising sales prices, and the reopening of the economy may draw
more sellers to the market, historically low levels of homes for sale are likely to
continue for some time.

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Clifton RE 1st Qtr 2021 vs 2020

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1st Quarter 2021 vs 2020

The 1st Quarter of 2021 is Experiencing a Surge in the Real Estate Market Like Never Before.

Clifton RE 1st Qtr 2021 vs 2020

1st Quarter of 2021 median sales price for Clifton was $ 400,000 with 188 homes SOLD and 101 Sale to List Price Ratio and 23 days on the market.

Compared to 1st Quarter of 2020 with a median sales price of also $345,000, with 108 homes SOLD 99.8 Sale to List Price Ratio and 39 days on the market.

1st Quarter of 2021: Experienced 16% Increase Over Same Period of 2020

That’s Great NEWS, Whether You’re Thinking to Sell or Someone You Know Who May, Please Help Us Get a Family Their New HOME!

WHAT TO EXPECT IN 2021!?

Interest rates ticked up a bit higher but still at historical lows and lack of homes available for sale is creating multiple offer situations and therefore price increases throughout the country.

The Northern New Jersey market as well is experiencing a strong buyer traffic and homes are going under contract in record time (usually (3-10 days) with multiple offers and in some cases way over asking.

Several points to consider:

In Clifton as well as other towns and neighborhoods are experiencing a shortage of homes for the anxious and desirous buyers, it’s a market still good for move-up buyers and those homeowners usually enjoy substantial gains in appreciation in the last few years which help to entice sellers when purchasing another home by affording better terms and conditions.

The Federal Housing Finance Agency is extending the assistance to homeowners wih loans backed by Fannie Mae and Freddie Mac currently in forebearance to receive another 3 months extending the Covid19 assistance to 18 months.

The expected increase of buyers traffic (60.7% higher than same period last year per showingtime.com) for the foreseeable future (2021) due to buyers looking for a more suburban lifestyle, more outdoor/indoor space, more room to breath in the outskirts of bigger cities, especially now that working remotely has and is becoming the new norm.

REMEMBER: RE is about the 3 P’s; Presentation, Promotion(Exposure) and Price.

Call us for a FREE, NO OBLIGATION consultation.

973-216-1945

Homes For Sale in Clifton by Price Range

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RE REport for March 2021

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RE REport for March 2021

The 2021 Real Estate Market is Already Sizzling Hot

February 2021 median sales price for Clifton was $ 410,000 with 53 homes SOLD and 101.2 Sale to List Price Ratio and 23 days on the market.

Compared to February 2020 with a median sales price of also $338,750, with 34 homes SOLD 99.7 Sale to List Price Ratio and 56 days on the market.

If You or Anybody You Know is Thinking to Move on, NOW is the TIME!

RE REport for March 2021 and Compare February 2021 vs February 2020

FEB-2021 FEB-2020

Median Price: $410,000 Median Price: $338,750

Days on Market: 23 Days on Market: 56

List-to-Sold Ratio: 101.2% List-to-Sold Ratio: 99.7

#of Units: 53 #of Units: 34

February 2021: OVER 20% Increase Over Same Period of 2020

That’s Great NEWS, Whether You’re Thinking to Sell or Someone You Know Who May, Please Help Us Get a Family Their New HOME!

WHAT TO EXPECT IN 2021!?

The continued rock bottom, historically low-interest rates in spite of the slight increases last couple of weeks and strong buyer traffic with better weather conditions which seems will hold through the end of the Winter and start of Spring, which is traditionally the start of the busiest home shopping season in the Northeast.

Several points to consider:

- In Clifton as well as other towns and neighborhoods we’re experiencing a shortage of homes for the anxious and desirous buyers, it’s a market still good for move-up buyers and those homeowners usually enjoy substantial gains in appreciation in the last few years which help to entice sellers when purchasing another home by affording better terms and conditions.
- The Mortgage bankers association estimate 2.7 million homeowners are still in forbearance and might come up in the market later on mostly as traditional sellers given the strong appreciation in the last few years, however, it would not be surprising to see some short sales and even foreclosures later in the year.
- The expected increase of buyers traffic (60.7% higher than same period last year per showingtime.com) for the foreseeable future (2021) due to buyers looking for a more suburban lifestyle, more outdoor/indoor space, more room to breath in the outskirts of bigger cities, especially now that working remotely has and is becoming the new norm.

REMEMBER: Real Estate is about the 3 P’s; Presentation, Promotion(Exposure) and Price.

Call us for a FREE, NO OBLIGATION consultation.

Roberto A. Sanchez

973-216-1945

Do You Know What's Your Home Value?

This is the Best Possible Time to Sell if Thinking to Move.

Contact Us

Our Address Is:

18-19 River Rd, Fair Lawn, NJ 07410

Our Telephone:

888-501-6953 Ext. 254 or Cell: 973-216-1945

E-Mail:

Rsanchez@Robsrealtor.com

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2021 RE Market Skyrocketing Up Already!

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2021 Real Estate Market Skyrocketing Already!

The housing market is already skyrocketing into 2021 so far. Buyers and their high demand have far outnumbered sellers and a short supply of houses. According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), sales are up 23.7% from the same time last year while the inventory of homes available for sale is down 25.7%. There are 360,000 fewer single-family homes for sale today than there were at this time last year. This increase in demand coupled with such limited supply is leading to more bidding wars throughout the country.

Rose Quint, Assistant Vice President for Survey Research with the National Association of Home Builders (NAHB), recently reported:

“The number one reason long-time searchers haven’t made a home purchase is not because of their inability to find an affordably-priced home, but because they continue to get outbid by other offers.”

A survey in the NAHB report showed that 40% of buyers have been outbid for a home they wanted to purchase. This is more than twice the percentage in 2019, which was 19%.

What does this mean for sellers today?

It means sellers have tremendous leverage when negotiating with buyers.

In negotiations, leverage is the power that one side may have to influence the other side while moving closer to their negotiating position. A party’s leverage is based on its ability to award benefits or eliminate costs on the other side.

In today’s market, a buyer wants three things:

To buy a home
To buy now before prices continue to appreciate
To buy now and take advantage of historically low mortgage rates while they last

These three buyer needs give the homeowner tremendous leverage when selling their house. Most realize this leverage enables the seller to sell at a good price. However, there may be another need the seller has that can be satisfied by using this leverage.

Sellers must use these benefits to buyers wisely while negotiating the best terms and conditions during a sale to ensure a smooth transition while selling their home for the highest amount possible and under the best terms and conditions.

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Do You Know What's Your Home Value?

This is the Best Possible Time to Sell if Thinking to Move.