Realtor® to Buyers and Sellers in Encino | Sherman Oaks | Studio City | Van Nuys | Tarzana

Tell your parents to sell their Encino home today!

sell-your-encino-houseI wish I had more friends who were in their 60s, but since I don’t, my sound advice to pass on to my friends’ parents is, sell your home today!

Here’s why:

The government allows you to sell your home and not pay taxes on up to $250,000 in GAINS for individuals and $500,000 for couples.  Note that these are on gains – not on equity, and some other restrictions apply.

To put it simply, let’s say your parents bought a home in Encino way back in 1977 for $100,000, and today it’s worth $700,000.  Regardless of how many times they’ve refinanced and taken out equity, or what they have left on their mortgage, if they were to sell that home in Encino today, they will have experienced a GAIN of $600,000 ($700k selling price – $100k cost basis).  This number might be a little bit off, since you can add improvements into the cost basis, and subtract expenses for selling from the value.  So, if they spent $50,000 to put in a pool, and will pay $50,000 in commissions and fees when they sell the home, the calculation is more like $650k (selling price minus expenses) – $150k (cost basis plus improvements) = $500k.

Now, here’s where you should pay attention: If you convince them to hire me to sell that home today, and they have $500k in profits, they don’t need to pay taxes on it!  BUT, if they hold onto the house for another 10 years, and the home value increases by another $300k, and then they sell it, they’ll need to pay taxes (in the range of 30%) on the profits above the $500k point.  So, they’ll have $800k in profits, but lose almost $100k of that in taxes! (30% of the $300k profits above the $500k point).

Hopefully you’re still with me.

If you understand the math, you’re probably wondering what you can do to keep more of your money (well, it might not be your money yet, but it will be some day…).  Here’s the solution: get them to sell their home today, before prices go up again!

If they sell their home now, while they still only have $500k in untaxed gains,  and then buy a new home down the block, same size, same price, the government will start counting again from their new cost basis.  So, they have the same investment, which will increase by the same $300k in 10 years, but if they were to sell that home, they’ll only have $300k in gains, which won’t be taxed!  In other words, you will have a total of $800k in gains, all of which you won’t pay taxes on!

If you made it to the end and all of this makes sense, that’s great! Forward this blog post on to your parents and explain it to them if they don’t get it.

If you’re totally lost, give me a call at (310)926-2386, send me an email or gchat and I’ll run through it again.

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