You've probably already considered your personal reasons for selling. Now
you need to take into account the other factors involved, such as market
conditions, your property's value and tax implications. Unless you're
locked into selling your home (e.g., you've already accepted a job offer in
another city), it's a good idea to look at the whole picture before
deciding to sell.
Assessing Market Conditions
There's a rule of thumb to keep in mind when deciding to sell your home:
Your home is only worth what a qualified buyer is willing to pay at the
time it's on the market. The current real estate market fluctuates based on
supply and demand, interest rates, general economic conditions, and other
factors. The same house may sell for more or less under a different
economy. Your REALTOR® can inform you of the going price for homes in your
area at the current time; this data is included in a comparative market
analysis (link to Appraisals and CMAs).
Tax Implications of Selling
There are many dynamics that can affect your tax liability upon selling
your home. These issues include whether you purchased the home or inherited
it, if you used your home for business or rental purposes, costs associated
with selling your home, and any home improvements and additions that you've
The Federal Taxpayer Relief Act of 1997 provides capital gains tax
exclusions of up to $500,000 for married taxpayers filing jointly and
$250,000 for single taxpayers or married taxpayers filing separately.
Current capitol gains rates are 20 percent for those in upper tax brackets
and 10 percent for those in lower tax brackets. Overall capital gains rates
have been lowered even further -- to 18 percent and 8 percent respectively
-- for assets acquired after December 31, 2000, and held five years or
To qualify for this tax break, you must have used the home as your primary
residence for at least two of the prior five years; these two years don't
have to be consecutive. If you relocate for your job but don't meet the
requirement, you may be allowed to take a capital gains exclusion
proportionate to your circumstances. This exclusion is not a one-time
benefit; you may take advantage of it once every two years as long as you
meet the qualifications.
The tax rules differ when you sell a home that you've inherited. If you
sell the inherited home for a profit, you're required to pay federal and
state taxes on the gain. If you keep the house as a second residence and/or
eventually move into it after renting it to tenants, you may take the
$250,000/$500,000 capital gains tax exclusion if you meet the requirements.
When you're deciding what to do with inherited property, you should
consider the current estate tax laws and basis practices.
Beyond these general rules, it's wise to discuss your home's sale with a
tax professional who can advise you on tax benefits in more detail.
Timing Your Decision to Sell
Because most sellers finance a new home purchase with the sale of their
present home, they usually put their homes on the market before they begin
their search for a new home. Learning the price you can expect from the
sale often sets the pricing parameters for your new home search.
Obviously, it's not wise to wait until the sale on your property closes
completely before beginning to look for your new home. Timing your search
properly with the buyers' transaction can make the difference between
having the available funds to buy a new home and cutting down on the
interim period between homes.