Real Estate has thrived these last two years, and selling can mean a large amount of cash to capitalize on but to do so also means understanding how to beneficially categorize any improvements for the purpose of reducing your tax liability upon sale. Do you know all the items and their classifications that lower your tax liability?
Take for instance, painting, an often large expense. Let me explain. Painting your home, depending on when it was done, can in one instance reduce your tax liability and in another instance, not. Painting is considered a maintenance item and is therefore not allowed to be added to your basis in you home; however, if you painted your home within three months of selling the property then it is seen as increasing the appeal of your property that in turn is seen as increasing the value of your property and therefore can be written off, reducing your tax liability. Here are some other caveats for reducing your tax liability:
Fixing faucets – NO | Replacing faucets – YES
Fixing a toilette – NO | Replacing a toilette – YES
Fixing sprinkler system – NO | Replacing sprinkler system – YES
Adding plants to an already
Existing landscape- NO | Creating a new landscape area – YES
The list goes on. Part of my job is helping you understand how to maximize your BASIS in your property as well as the accepted, additional write-offs that all together reduce your tax liability.
A recent meeting about this very thing in which we worked through a worksheet, resulted in a sum of $299,000 that could be used to reduce their tax liability upon sale – an amount way more than the generalized amount they had in mind. It ALL makes a difference!
The market has experienced quite an increase in value over the last 2 years, which also means a potential increase in capital gains tax, but understanding the possibilities for capitalizing on the equity gain while applying all the ‘allowed’ deductions, might make a difference in your decision to sell now or not. If you are thinking about selling your HOME let’s have a conversation about all the possibilities for your situation that could lower your tax liability.
All the best to you,