Clear a Profit on a House in 2014? You Might Not Owe Capital Gains Taxes

If you sold your home for a profit in 2014, congratulations!
More sweet news may be on the way: You might not have to declare your profit as income. In fact, you could be eligible to keep all or part of the profit from your sale without paying income taxes on it.
Now, before you get too excited, you need to know the rules.

 

How to determine your tax exclusion eligibility:

 
There are a few general rules to remember to avoid paying a capital gains tax on your home sale:

• You have to have owned the home and used it as your primary residence for at least two of the past five years before it was sold.
• The maximum profit you can exclude from capital gains taxes is $250,000 for a single person or $500,000 for a couple filing a joint return.
• You can exclude the gain from the sale of your main home only once every two years.
• If you own more than one home, you can exclude only the taxes on the sale of your main home—the one you live in the majority of the time.

 

When to declare your home sale on your tax return:

• If you receive the 1099-S form (“Proceeds From Real Estate Transactions”), you’ll have to report the sale on your tax return.
• If you can’t exclude all or part of your home sale from the capital gains tax, then you’ll have to declare the transaction on your taxes.
• However, if you think you meet the requirements to avoid paying taxes on the profit from your home sale, act quickly at the close. You can certify with your Realtor®, lender, and settlement attorney (or title agent) that you qualify for a tax exclusion when the sale closes. If you didn’t notify anyone when the sale closed, you can still inform them by Feb. 15 of the year following the sale. Once that’s done, you won’t have to declare your home sale on your income tax return.

 

How to figure out your total profit:

 
Determining the size of your profit isn’t as simple as calculating the difference between what you owed on your mortgage and the sale price of your home.
For tax purposes, you need to calculate an “adjusted basis” for your home, which involves in the following:

• The original price your paid for the home
• Adding in the cost of any improvements you made. This doesn’t mean routine maintenance—these improvements need to be substantive changes that added to the value of your home
• Subtracting any items you claimed to reduce your tax bill during the years you owned the home, such as depreciation, casualty losses, or energy credits.

Once you’ve done those calculations, subtract them from the sale price to arrive at your profit.

Some exceptions:

 
Of course, there are exceptions! These exceptions may allow you to qualify for a full or partial exclusion.

• If you are in the military, federal intelligence, or the foreign service and have spent some time working abroad over the past few years, you may be exempt from the rules outlined above.
• You may qualify for a partial capital gains tax exclusion if you sell your house due to a change of employment, change of health, or other unforeseen circumstances, including divorce.

As always with tax issues, consult a qualified tax adviser to ensure you follow the rules and maximize your tax deductions.

3 Key Tax Deductions Renewed for Homeowners for 2014 Income Taxes

If you are anticipating a rough year when it comes to filing taxes, don’t turn those forms into new year’s confetti just yet. Several key provisions for homeowners have been retroactively renewed for 2014—and they might provide you with some much-needed tax relief.
If you did any of these three things in 2014, you still have reason to celebrate (OK, maybe not really celebrate, but celebrate as much as anyone can while doing taxes).

Short sale

In the third quarter of 2014, 8.1 million homes in the United States were seriously underwater, according to the real estate research firm RealtyTrac. If you were a homeowner who decided to short-sell your home last year, it’s not all bad news: Congress once again extended the Mortgage Forgiveness Debt Relief Act.

The act made it so qualifying homeowners did not have to pay tax on debt forgiven by a lender. Without the act’s tax shield, that forgiven debt—up to $2 million—is seen as taxable income by the government. For homeowners owing hundreds of thousands of dollars on a loan, that could be a crippling amount of money owed to the IRS.

The act is retroactive, so when Congress finally renewed it in late December, it covered short sales in 2014. Short-selling a home in 2015 is a gamble—if Congress doesn’t renew the act, you’ll have to pay taxes on forgiven debt.

Private mortgage insurance

For people who couldn’t provide a 20% down payment, private mortgage insurance (PMI) is a familiar expense. But if you bought your house in 2007 or afterward, you were given a break if you earned less than a certain amount of money each year. Luckily, that provision is still around. The bill was set to expire in 2014, but two weeks before the end of the year, Congress extended the provision into 2015.

So if you bought a home (including vacation homes, but not rental properties) in 2014, or any other year since 2007, you can still deduct PMI from your taxes.

However, the PMI deduction begins phasing out when the adjusted gross income (AGI) of the head of household, married filing jointly, or single earner passes $100,000. For married filing separately, the phaseout begins at $50,000 AGI.

The deduction is phased out by 10% for every $1,000 earned over the threshold. If you pass $109,000 AGI (or $54,500 for married homeowners filing separately), the deduction phases out completely.

Energy upgrades

If you waited until 2014 to make energy-efficient upgrades, you may be in luck. You can claim up to $500, cumulatively, in tax credits for energy-efficient upgrades involving the following:

• Exterior windows
• Heating and cooling systems
• Insulation
• Exterior doors
• Biomass stoves

This tax break is cumulative for previous years. If you claimed $400 worth of equipment in 2013, you still have only $100 to work with.

The extension of these tax provisions will help some homebuyers for 2014, but there’s no guarantee that Congress will renew them for the 2015 tax year.

3 Big Tax Breaks if You Buy a Home in 2015

So you didn’t buy a house last year. That’s OK—you haven’t missed the boat yet on low mortgage rates or a healthy inventory of homes. In many ways, 2015 is a great time to buy a home, not the least of which is for certain tax breaks.

Here’s how you could enjoy three significant tax benefits if you purchase a home this year.

 

1. Use points for even lower interest rates

Deductible points are a standard tax break, but 2015 might be a good year to buy points. Interest rates have been at all-time lows, and many experts believe the only direction they can go is up. With 30-year rates hovering around 3.6%, an extra point or two can knock those low rates down even further.

One point typically lowers your interest rate by about 0.25%. (A point costs about 1% of your loan amount, and it’s paid at closing.) So if you buy two points off a 30-year fixed-rate mortgage of $350,000 with a 3.8% interest rate for $7,000, you could reduce your interest rate down to to 3.3%.

Points are considered a form of interest and are tax-deductible in the same year for first-home purchases as long as you meet a few standard requirements. So even if buying points doesn’t drop your monthly payments by much, you can still get a sizable tax break.

 

2. Take advantage of energy credits

If you buy a home in 2015, you may want to outfit it with some energy-saving systems—because you can write off 30% of the cost as part of the Residential Renewable Energy Tax Credit. Examples of eligible items include the following:

• Geothermal heat pumps
• Solar panels, solar water heaters
• Fuel cell property
• Wind turbines

With the exception of fuel cell property, which has a limit of $500 per kilowatt, there are no maximum credit limits for qualifying items.

The tax credit is good until the end of 2016. If the amount of your tax credit exceeds your tax liability—meaning if you can deduct more than you owe in taxes in 2015—you can roll the credit over to your 2016 taxes. (There’s no word yet on whether the credit will extend to 2017.)

 

3. Say ‘goodbye’ to renting (which offers no tax breaks)

If you don’t own a home, you most likely rent. And renting has gotten very expensive, with no signs of slowing down. According to the Wall Street Journal, rent has been rising for the past five years—specifically, by 15.2% since 2009.

Renters don’t get many tax breaks, but home buyers do. 2015 might be the year to call it quits on paying $1,800 for a studio apartment with nothing to show for it. Check out the Realtor.com app to see what’s available, and use our Rent or Buy calculator to see how long it will be before renting becomes more expensive than buying in your area—you might be surprised.

 

Note: Some tax breaks are in limbo

The following buyer-related credits will expire by the end of 2015 if Congress doesn’t act. Don’t count on them, but don’t count them out either.

• PMI deduction: This credit allows you to deduct money paid on private mortgage insurance.
• Energy upgrades: The Nonbusiness Energy Property Credit allots you a lifetime cumulative cap of $500 in deductions for energy-efficient upgrades (with a $200 lifetime cap for window upgrades).

How & Why Water Pipes Can Freeze in Your Home

Here's a great video from the Weather channel that illustrates how and why copper water pipes in your house can freeze up and burst. 

Reasons to Buy Real Estate

Home Office Tax Dedeuction

• 

  2 Deduction Options When You Work From Home

  Like things easy? The new simplified home office deduction may be your salvation from the long form. But you might not save as much the easy way. Read

Visit houselogic.com for more articles like this.

Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

Home Ownership and Your 2013 Taxes

• What You Should Know About Your Home and Your 2013 Taxes

  It’s the last year for three sweet home tax benefits, but the first for a way simpler home office deduction. Read

Visit houselogic.com for more articles like this.

Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

Home Owner Tax Deduction Questions

• Your Top Home Ownership Tax Questions Answered

  Which tax benefits do home owners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day. Read

Visit houselogic.com for more articles like this.

Copyright 2014 NATIONAL ASSOCIATION OF REALTORS®

A Trust is NOT an Entity - It's a Relationship (Symantics)

The Problem:  

Practitioners, and occasionally even some courts, will refer to assets as being “owned” by a trust, or will say that someone is “suing” the trust. This likely arises from the fact that proper designation often involves cumbersome syntax. For instance, saying a home is “owned by a trust” is shorter and far more natural than saying a home is “legally owned by Jane Trustee to hold in trust for the benefit of John Beneficiary.” And, in casual conversation, both phrases would communicate the same idea. But the difference between the two can have serious repercussions, as the California Court of Appeal recently struck back against this loose language in Portico Management Group, LLC v Alan Harrison et al Case No. C062060, December 28, 2011

The Case:  

In Portico, a property management company entered into a contract to buy an apartment complex that was owned by a married couple as trustees of two trusts. When the deal fell through, the company sued the trustees. The lawsuit properly named the couple as trustees and the case was sent to arbitration pursuant to the purchase contract. The company won an award of $1.6 million, but while the company properly sued the couple as trustees, the arbitrator’s award read “the General Trustees are not personally liable for their acts as trustees of an irrevocable Trust… Thus, the award in this case is against [the trusts] in proportion to their ownership interest in [the property].” When petitioning for the trial court to confirm the arbitrator’s award, the company proposed that judgment be entered against the couple as trustees of the trust. The couple objected and the trial court agreed with them. Judgment was entered against the trusts, not against the couple as trustees of the trust.

Instead of applying to the arbitrator to change the award or petitioning the trial court to correct the award, the company tried to enforce the judgment against the trustees. After years of litigation, the Court of Appeal eventually found that the company could not enforce the judgment because the judgment was against the trust itself, and to add judgment debtors at this stage would violate the trustees’ due process rights. A judgment debtor must be a person, and a trust is not a person, it is a relationship.

The Takeaway:  

Despite the fact published opinions will often employ casual shorthand to the effect that trusts “own” property or a trust is “being sued,” this is not technically correct. And as the company learned, painfully, technicalities matter. A trust is not an entity; it is a relationship with respect to certain property. Trusts cannot satisfy judgment debts because trusts are not persons. If judgment is mistakenly entered against a trust, the remedy is to appeal the judgment that is actually entered, not to try to enforce a judgment as it should have been written.

National Association of REALTORS (NAR) Files Lawsuit Filed Against Zillow

I am not a big fan of Zillow at all.  This site misguides the public and their data if often fraught with glaring errors and discrepancies.  Rather than the public turning to a true licensed professional REALTOR (or a local Association or Board of Realtors) for advise and counsel on real property matters and local market conditions, and statistics; the reliance upon information contained in Zillow.com is a HUGE mistake for any consumer of real estate property related services.  



http://news.move.com/2014-03-17-Move-and-NAR-File-Suit-Against-Zillow-and-Samuelson

Move and NAR File Suit Against Zillow and Samuelson

Complaint details misappropriation of trade secrets and confidential information

Mar 17, 2014

SAN JOSE, Calif., March 17, 2014 /PRNewswire/ -- Move, Inc. (NASDAQ: MOVE), an online leader in real estate, today filed a lawsuit against Zillow, Inc. (NASDAQ:Z) and Errol Samuelson in the Superior Court of King County, Washington for breach of contract, breach of fiduciary duty, and misappropriation of trade secrets among others actions. The National Association of REALTORS and its subsidiary Realtors Information Network, Inc. joined as plaintiffs in the suit.

"At Move, we take our trade secrets and intellectual property extremely seriously as a valuable asset in our competitive position in the marketplace," said Steve Berkowitz, CEO of Move.  "We take action in cases in which we believe our trade secrets have been compromised. We have raised this matter for the courts and believe that the matter will be resolved judiciously."    

About Move, Inc.

Move, Inc. (NASDAQ:MOVE), a leader in online real estate, operates:  realtor.com®, the official website of the National Association of REALTORS®; Move.com, a leading destination for new homes and rental listings, moving, home and garden, and home finance; ListHub™, the leading syndicator of real estate listings; Moving.com™; SeniorHousingNet; SocialBios; Doorsteps®; TigerLead® Top Producer® Systems and FiveStreet.  Move is based in San Jose, California.