Some thoughts that might be of interest to those with substantial gains on their primary residence or a home that was their primary residence for 2 out of the last 5 years.
Taxes are a topic on the minds of many nowadays. Taking advantage of opportunities when they arise is a foundational part of incorporating tax planning within your overall financial/investment plan.
That leads me to share with you an idea that will probably not apply to most of us, but for the individuals where it does apply, it might be very attractive in the current environment.
1) Real estate prices have increased dramatically over the last year.
2) On a primary residence when meeting the IRS guidelines, up to $250,000 in gains for individuals and $500,000 if married filing joint. The primary qualifier for this exclusion is to have lived in the house for 2 out of the last 5 years. Here is a link to the IRS website. https://www.irs.gov/taxtopics/tc701
Most seem to expect taxes to be higher in the future, and there is talk about stepped up basis going away in the future too.
Some might be concerned with their current total % of net worth in real estate.
For individuals with substantial gains in real estate that qualifies for the exclusion here are a few situations that come to mind for the sale of the property being an interesting consideration.
- Individuals that own more than one property. Sell the primary residence and move into one of the other properties.
- Individuals that have a rental property that used to be their primary and it qualifies for the exemption.
- Individuals with substantial gains that are open to moving (buying a different home or renting).
There may be other scenarios too, these are just a few that have come to mind when thinking about what situations this might be attractive for.
Real estate is a very unique asset class that is often viewed differently by different people, ie… viewing ones home as an investment or not. I see merit to both views, and helping clients work through what is right for them within the context of their overall financial plan often provides value and peace of mind.
Remember owned real estate is an asset, and if wanting to profit, selling when asset prices have increased is often a worthy consideration, in my opinion even more so when there are tax advantages involved.
As always, should you have any questions, feel free to reach out.
Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.