The temperature and the leaves aren’t the only things falling right now.
Last week the Fed, for the first time since 2020, announced that they were cutting the federal interest rate by 0.5 percent. It’s the first time in four years that they’ve reduced the rate rather than raising it — a sign to some that inflation has slowed and the economy is righting itself.
Though, some still are concerned about the possibility of a recession undergirding the aggressive rate cut.
For now, the half a percentage point cut spells relief if you’re looking to buy a home or car. The gradual decline in mortgage rates will make it more affordable for you to purchase a home or refinance your current one. And if you’re looking to upgrade your vehicle, securing a car loan will likely be less expensive than before. Even credit card interest rates are projected to see a slight reduction.
Interest rates will likely continue to fall as the Fed makes more rate cuts through next year. If you can hold out on buying a new home or car until then, you’ll be looking at a much lower interest rate on any loans.
With the possibility of more buyers and more demand, if you’ve been thinking about selling your Brooklyn home, doing so now *could* be a good move. Just make sure you’ve thought about the taxes on a house sale (see below)…
Taxes on a House Sale: How New York/New Jersey Metro Sellers Can Save
“The ache for home lives in all of us.” – Maya Angelou
Thinking of selling your home? Congrats! Change is exciting, made better by turning a profit on the sale.
But, before you pop the champagne, let’s talk about something that catches plenty of homeowners off guard far too often—taxes on a house sale. You don’t want to be surprised by the capital gains taxes when you sell, especially if you’ve seen your home’s value soar.
So before you hang that “For Sale” sign, let’s look at what selling your home means for your tax situation.
How capital gains are calculated: Gains on the sale of your primary residence are calculated by subtracting your adjusted basis from the selling price.
Your adjusted basis is the original purchase price plus any improvements you’ve made to the property. So, if you bought your house for 200K, made improvements worth 50K, and then sold it for 350K, your adjusted basis would be 250K and your capital gain would be 100K.
Note: Selling costs, such as real estate commissions, attorney fees, and advertising costs, are subtracted from the selling price before calculating the capital gain.
Claiming the capital gains exclusion to shield you from taxes on a house sale: Because the IRS recognizes the importance of home ownership, they offer you a way to protect some of the profit you make from selling your home with the homeowner’s exclusion. This only applies to your primary residence, not vacation homes or rentals.
If you’re married, the exclusion amount is up to 500K of your home’s sale profit, 250K if you’re single.
As with many things with the IRS, there are a few boxes you’ll need to tick.
– Ownership: You need to own the home for at least two out of the five years leading up to the sale. Note: Only 1 spouse has to meet these qualifications if married filing jointly.
– Use: You must have lived in the home for 24 months out of the last five years—the two years of living do not have to be consecutive, merely cumulative.
Note: If married filing jointly, both spouses must meet this requirement.
What happens if your profit exceeds those limits: Then you’re looking at capital gains taxes on the overage. For example, if you’re married and sell your home for 800K after buying it for 200K, your gain is 600K. The first 500K is excluded, but the remaining 100K will be taxed. For 2024, those taxes can range from zero percent to twenty percent, depending on your income level.
Capital gains that don’t qualify for the exclusion: If you’ve owned your home for less than a year, the gains you receive from the sale could be taxed at your ordinary income tax rate, which is often higher than long-term capital gains rates.
How can you reduce your taxes on a house sale?
Look for capital losses in other areas. If you’ve got underperforming investments, like stocks or cryptocurrency, selling them can help offset the gains from your home sale.
Increase the adjusted basis of your home. Account for any major improvements you’ve made over the years. Add a new roof, remodel the kitchen, or upgrade the HVAC system? These expenses can increase your home’s basis, reducing the taxable gain when you sell. Be sure to keep documentation of these improvements—without it, the IRS won’t count them.
My best piece of advice here is to know your numbers before you sell. If you’re considering selling your New York/New Jersey Metro home, let’s sit down to calculate your potential gains and plan ahead. This way, you’ll go into the sale with a clear understanding of what to expect—no surprises, just good planning.
To keeping more of your profit,
Lillian Turner-Bowman