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HOW TO FIND OUT THE REAL COST OF YOUR HOME...
Back in 1997 Congress said you may exclude the first $250,000
of gain when you sell your home. On a joint return, a couple
could exclude up to $500,000 of gain. In 1997 such a gain
seemed impossibly large. Today many homes can top these
figures. If yours is one of them, I think it’s time to remind you
how to find the real cost of your home.
Complete Rule. To earn the exclusion, you must answer
“YES” to these:
1. Have you owned the property for at least 2 years
before the sale?
2. Has this been your main home for at least 2 years in
the 5-year period just prior to the sale?
3. Has it been at least 2 years since you claimed an
exclusion?
Real Cost of Your Home. We start with your purchase price
plus some of the closing costs. Then we add the cost of all the
improvements you made to the property. Anyone can recognize
the added bedroom or kitchen remodel. But I’m looking for
many more things! Let’s play a little game:
Home improvements game: Let’s pretend you’re selling your
home today. Pretend you suddenly find:
A Batch of Photos from the day you bought the home. Perhaps
50 of them – shots of inside and outside, a couple of shots of
every room. (I know you don’t have the photos – we’re
pretending here
Take New Photos. Now pretend you grab a camera and make
duplicate shots of each photo - same angle, same exposure.
Find a Small Child, place the old and new photos side by side,
and as the child to find the differences. The child will spot the
curtain rods, ceiling fans, new mailbox, switch plates, different
faucets, built-in shelves, and more. These may not seem like
improvements, but are you going to sell them? If they were not
part of the original purchase contract, you must have paid for
them! Their cost is added to the cost of the home. Even the
$2.98 paper towel holder above the sink.
How Can I Possibly Keep Records? Easier than you’d think.
Play the game this week, and list everything you see. For some,
you have the records. List your best memory of costs for the
other items – this is better than no record at all. For the future
here’s an easy way to keep your records:
A Large Envelope for each year. This trick is this – you may not
put anything inside the envelope until you write the details on
the outside. Walk around the house look for this you missed.
Once a year this is quick and easy. There’s another benefit. If
you live in a home long enough, you’ll replace the carpets a
second time. The first set no longer counts! You consumed the
carpets and cannot sell them. If you simply threw everything
into a file, you’ll never find the earlier carpet job. With the
envelopes, you simply look back a few years for the envelope
with the carpets written on the outside. Cross off the carpets!
Easy.
I think you have more improvement costs (less gain) than you
suspected!
Santos Associates, FEDERALLY AUTHORIZED TAX
PRACTITIONERS, can help you with your accounting, tax
and financial planning needs. Call today for an appointment &
consultation. We are not attorneys, we can refer competent council
upon request.
