Practical Real Estates

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you dispose of property in an installment sale, you report part of your gain when you receive each installment payment. You cannot use the installment method to report a loss.

General Rules

If a sale qualifies as an installment sale, the gain must be reported under the installment method unless:

• You elect out of using the installment method

• You are not a qualified accrual method taxpayer

References/Related Topics

• Form 6252, Installment Sale Income (PDF)

• Publication 537 , Installment Sales

• Tax Tips – Real Estate

Source

You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

* Owned the home for at least two years (the ownership test)
* Lived in the home as your main home for at least two years (the use test)

Gain

If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

* If you can exclude all of the gain, you do not need to report the sale on your tax return
* If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)

Loss

You cannot deduct a loss from the sale of your main home.

Worksheets

Worksheets are included in Publication 523, Selling Your Home, to help you figure the:

* Adjusted basis of the home you sold
* Gain (or loss) on the sale
* Gain that you can exclude

Reporting the Sale

Do not report the sale of your main home on your tax return unless you have a gain and at least part of it is taxable. Report any taxable gain on Schedule D (Form 1040).

More Than One Home

If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

Example One:

You own and live in a house in the city. You also own a beach house, which you use during the summer months. The house in the city is your main home; the beach house is not.

Example Two:

You own a house, but you live in another house that you rent. The rented house is your main home.

Business Use or Rental of Home

You may be able to exclude your gain from the sale of a home that you have used for business or to produce rental income. But you must meet the ownership and use tests.

Example:

On May 30, 1997, Amy bought a house. She moved in on that date and lived in it until May 31, 1999, when she moved out of the house and put it up for rent. The house was rented from June 1, 1999, to March 31, 2001. Amy moved back into the house on April 1, 2001, and lived there until she sold it on January 31, 2003. During the 5-year period ending on the date of the sale (February 1, 1998 – January 31, 2003), Amy owned and lived in the house for more than 2 years as shown in the table below.

Five Year Period — Used as Home — Used as Rental
2/1/98-5/31/99 — 16 months
6/1/99-3/31/01 — 22 months
4/1/01-1/31/03 — 22 months
38 months 22 months

Amy can exclude gain up to $250,000. However, she cannot exclude the part of the gain equal to the depreciation she claimed for renting the house.

Source

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your “Taxable Estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2 percent of all Americans.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) with a total value under $1,000,000 do not require the filing of an estate tax return. The amount was $1,500,000 in 2004 and 2005. For 2006 through 2008, the amount is raised to $2,000,000.

For additional information, refer to Instructions for Form 706.

Source

Real estate transfer tax is a tax that may be imposed by states, counties, or municipalities on the privilege of transferring real property within the jurisdiction. Total transfer taxes range from very small (for example, .01% in Colorado) to relatively large (2.2% in the District of Columbia).

Some states have a variety of transfer tax laws which may include specific exemptions for certain types of buyers based on buying status or income level (e.g. Maryland exempts certain “first time buyers” from a percentage of the total or excludes a portion of the property’s sales price from taxation altogether). (more…)

One good news from this recession wrecked world is that real estates experts are saying that home prices are starting to level out. After an almost continuous year long decline (more than that for other areas), prices seem to have stabilized to the much-awaited rock bottom prices. Mortgage rates are also at their lowest ever and both are to benefit the prospective home buyer who have been waiting a long time for the right time to go ahead with their purchase. (more…)

The sudden boom of development in the many metro centers around the world has produced a demand for almost everything. That was all answered by the local grocery but the biggest ones and the ones who had the most choices of goods were still quite a distance from most homes due to zoning regulations. Then, one bright minded person decided to answer the calling for small stores offering the most wanted stuff that people buy and the convenience store was born. Today, on almost every street corner in major urban centers, you will find branch of 7-11 and so many more, existing to serve the public for that forgotten jar of mayo and more, plus their own products of course and they are indeed booming. (more…)

You’re looking for a home and you fond one that is very much to your liking but you see the pool and don’t want it, what do you do? Well of course you’ll cover it up to get more flat space for either an extension to the existing home. But taking out the pool isn’t all that simple and may haunt you back when you least expect it. Above-ground pools are easy for they can simply be dismantled and hauled away, in-ground pools however are a bit more difficult for surely one would do a simple cover and build job to save money, right? Nope, that would be a very wrong move for the pool has to be dismantled just the same for building upon it, you risk settling when you add more weight with the (more…)

People who have second homes often fail to get good prices for them due to urgent needs for cash to maintain their first homes. Falling victim to the credit crunch and housing market crisis, people are opting to sell at lower than normal prices to prevent foreclosure on their other properties, unloading inventories fast. The statistics are showing that people who would have normally fared better are not doing so mainly because of the surprising length of time it is taking the market to recover. Mortgage payments that are more than two months old are subject to auction but owners sell at low price to avoid losing them, paying the rest of their obligations with the proceeds of the sale, but often ending in debt rather than out of trouble. One luxury homes, now foreclosed are offered to the highest bidders in auctions by lenders who like you need cash to stave off collapse.
People were just too unprepared for the crash and many are in trouble, the bailout being caught up in red tape comes too late often right after homeowners have lost their homes. People fail to realize that they can negotiate for better deals by re-financing their existing mortgage, taking action before they are deep in trouble from these lenders. Scams are also on the rise due to desperate homeowners who risk all simply to keep their existing homes intact.

That would be a very good idea considering the amount of profit you can get on rentals but even with rock bottom prices, the industry is still a bit unstable with no end to the recession in sight. If you happen to have a lot of cash that has escaped the many bank, credit and economic problems why not. The truth goes something like this, the prices are at their lowest but nobody is buying. Why, you may have finished paying off your home mortgage but taking on a new one might not go down good for the economy is still on the rocks.
Everything has to do with the economy and for the industry to recover, Wall Street has to recover, banks must bounce back and get over the credit crisis, people have to get back their jobs so they start spending and saving again. The money they save will suffice for their needs and surplus amounts can be used to buy a new home. All that has to happen for the real estate business to recover and that’s a lot of stuff to wait for that are quite inter-twined so one drags down the other and so on and so forth.

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You must be an expert in the area of real estate. Like an expert on investment real estate said, success is a journey, not a destination. It is only in starting and continuing to do something everyday that people become experts. Practice makes perfect and that is so true. In real estate, you learn something new in every deal that you put together. The lesson you learn every time is different from what you will learn in your second, third, fourth and so on deals mainly because each has different features and characteristics from the next. You learn by doing. Expertise is gained through experience.