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Downsizing can be a great way to declutter your life and embrace change. Nevertheless, there are some important possessions that should survive the transition.
Recycling a lot of paper is a good sign when downsizing, but make sure that doesn’t include important documents. It’s easy for them to get caught up in the shuffle and tempting to think that if it’s been a year or two you won’t need them again. But think again! You never know when you’ll have to prove something about your financial history. If you don’t want all that paper, consider digitizing documents and putting them somewhere offline and secure.
Medication and Cleaning Supplies that Haven’t Expired
Getting rid of all your half-empty pill bottles can seem like a great way to clean up, but replacing these items can be expensive. Consolidate and relabel; don’t toss over-the-counter medications or cleaning products that work just fine.
The Pride of your Collections
You collected these things for a reason! If you still enjoy a collection but don’t have the space to keep all of it, select the three-five pieces that mean the most to you and pass on the rest. Depending on the theme, consider donating the rest of the collection. The recipients will be grateful, and you might even be able to go visit.
Yes it’s a good idea to digitize printed photos, but don’t use that as a excuse to throw away your physical copies. There’s something special about holding a photo in your hand.
By all means get rid of your old electronics, but don’t just toss them in the trash. That’s bad for both the environment and your personal security. Make sure you wipe all personal data off of phones and computers before letting them go, and contact your city or municipality for disposal suggestions.
Things that Make You Laugh
It doesn’t matter if no one else sees the value in a specific item; if it makes you laugh or brings you joy it should be a part of your smaller house!
Selling your home can be an exciting and challenging experience, particularly if you’re attempting to simultaneously sell one house and purchase another.
Imagine making $250,000 and not having to pay taxes on it. That’s the generous tax break –the home sale exclusion — homeowners are entitled to when they sell their primary residence for a gain after having lived in the home for at least two of the five years immediately preceding the sale. Couples can shelter $500,000.
If you’re certain that you’re not required to pay taxes on the sale of your home because you meet the exclusion eligibility requirements, then you aren’t required to report the sale of your home on your federal tax return.
Do You Qualify for Home Sale Exclusion?
Here’s the most important thing you need to know though: To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. Your home can be a house, apartment, condominium, stock-cooperative, or mobile home fixed to land. If you meet all the requirements for the exclusion, you can take the $250,000/$500,000 exclusion any number of times. But you may not use it more than once every two years.
The two-year rule is really quite generous, since most people live in their home at least that long before they sell it. (On average, Americans move once every seven years.) By wisely using the exclusion, you can buy and sell many homes over the years and avoid any income taxes on your profits.
One aspect of the exclusion that can be confusing is that ownership and use of the home don’t need to occur at the same time. As long as you have at least two years of ownership and two years of use during the five years before you sell the home, the ownership and use can occur at different times. The rule is most important for renters who purchase their rental apartments or rental homes.
To qualify for the home sale exclusion, you don’t have to be living in the house at the time you sell it. Your two years of ownership and use may occur anytime during the five years before the date of the sale. This means, for example, that you can move out of the house for up to three years and still qualify for the exclusion. This rule has a very practical application: It means you may rent out your home for up to three years prior to the sale and still qualify for the exclusion. Be sure to keep track of this time period and sell the house before it runs out.
To qualify for the exclusion, you must have used the home you sell as your principal residence for at least two of the five years prior to the sale. Your principal residence is the place where you (and your spouse if you’re filing jointly and claiming the $500,000 exclusion for couples) live. You don’t have to spend every minute in your home for it to be your principal residence. Short absences are permitted—for example, you can take a two month vacation away from home and count that time as use. However, long absences are not permitted. For example, a professor who is away from home for a whole year while on sabbatical cannot count that year as use for purposes of the exclusion.
You can only have one principal residence at a time. If you live in more than one place—for example, you have two homes—the property you use the majority of the time during the year will ordinarily be your principal residence for that year. If you have a second home or vacation home that has substantially appreciated in value since you bought it, you’ll be able to use the exclusion when you sell it if you use that home as your principal home for at least two years before the sale.
There are certain additional requirements you must meet to qualify for the $500,000 exclusion. Namely, you must be able to show that all of the following are true: you are married and file a joint return for the year either you or your spouse meets the ownership test both you and your spouse meet the use test, and during the 2-year period ending on the date of the sale, neither you or your spouse excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the exclusion is figured separately for each spouse as if they were not married. This means they can each qualify for up to a $250,000 exclusion. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. For joint owners who are not married, up to $250,000 of gain is tax free for each qualifying owner.
If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death.
How to Calculate Tax from Your Home Sale?
If you do have to pay taxes, you and your tax professional will need to calculate the adjusted basis of the house. Your taxes will be based on the calculation of the sales price of the home, minus deductible closing costs, minus your basis. Some examples of deductible closing costs include the real estate broker’s commission, title insurance, legal fees, administrative costs and any inspection fees paid by you instead of the buyer. If you made any home improvements specifically in order to sell your home, such as new landscaping or repairs or replacing the carpet in some rooms, you can deduct those costs – as long as you did them within 90 days before the sale. You may also be able to deduct moving costs from your tax bill if you’re moving at least 50 miles because of a job change.
While these are potential tax implications of selling your home, you should always consult a tax professional to make sure you are meeting current IRS requirements.
When you are making long-lasting decisions about kitchen and bath remodeling, it is important that you make smart and informed ones. In a recent article in Remodeling Magazine, estimates that a major remodel of a kitchen costs $59,000 – $120,000 and a major bathroom remodel costs $17,000 – $57,000.
1. CLEAN & UNCLUTTERED
Uncluttered spaces are always a good idea for kitchens and bathrooms. Think cleanliness and hygiene. Store equipment and supplies in dust-free areas like drawers or cupboards to keep countertops clutter free and avoid dust-collecting crevices. Both rooms also need space to store cleaning supplies. These areas should be tamper proof for small children but easily accessible to adults. Think high shelves or drawers suitable for a simple child lock.
2. NEUTRAL PALETTES
Neutral colors for countertops, cabinetry, flooring, backsplash, and appliances add longevity to your remodel . If you are worried a neutral color-scheme might be boring, add textures or patterns in non-painted areas. Tilework is a great place for a dash of eye-catching variation. Or consider contrasting rich neutrals like ivory and chocolate brown or white and charcoal gray.
3. ENERGY EFFICIENT APPLIANCES
Energy-saving, good-looking appliances are ever more affordable and in vogue. These refrigerators, microwaves or ovens offer good long-term value. Also consider low-flow water fixtures or on-demand water heaters. Look for the Energy Start logo when shopping for appliances and talk to your contractor about other ways to save on your monthly energy and water bills.
4. MAXIMIZED SPACES
The functionality of a room has more to do with layout and design than the amount of square footage. Increased functionality comes down to systematic use of space. Try out ergonomic designs for efficient movement and carefully consider the placement of storage areas. Pull-out drawers and other hidden spaces help fit more into a room and keep everything organized. Plan ahead and be sure to factor in details to help keep you in budget.
Myth #1 – You Will Pocket More Money Selling on Your Own
Most FSBO sites say you can save the commission by selling on your own. What happened in Sambrotto’s sale?
From the WSJ article:
“The broker, Jesse Buckler, said he told Mr. Sambrotto the apartment in the Lion’s Head building on West 19th Street near Sixth Avenue was priced too low and wasn’t drawing the right buyers.
By May, it went into contract, he said, after attracting multiple offers. It closed in the last few days for $150,000 more than the original asking price.” ~Wall Street Journal
Myth #2 – The Internet Alone Can Sell Your Home
Many have said that, with the introduction of home search on the internet, hiring an agent is no longer a necessity. What happened to the FSBO guru when he attempted to only depend on the internet?
From the WSJ article:
“Looking to move his family to the suburbs, [Mr. Sambrotto] said he carefully staged his apartment for sale himself, and put it on the market. But after using a mix of websites to publicize his apartment, he said he had only ‘middling success’ and switched to a broker because many buyers were so reliant on brokers.”
There is a reason the real estate industry has been around for centuries: it performs a valuable service.
To contractors, allowances in contracts may be self-explanatory, but owners often find them confusing. A typical section on allowances may look like this:
Kitchen appliances $25,000
Bathroom fixtures $20,000
What contracts often don’t explain is, what happens when the full value isn’t used? If I only spend $8,000 on the cabinets, do I then get to allocate the $2000.00 to another category? If not, why not? Who is responsible for buying the materials? Will the checks be made out to the General Contractor? Is the General Contractor charging a mark-up on materials? Will this include change order items? Contractors often find that owners will claim that they can find materials and supplies more cheaply on the internet. It is the contractors’ job to explain to the owner that he has a relationship with his suppliers that ensures timely delivery and good quality. How will overages be charged? Will the contractor issue a written change order, or will the owner pay for the materials directly? What will be the level of quality for materials? I once handled a dispute over the definition of “builders-grade” toilets. It is better to include brands and specific choices in the scope of work to prevent misunderstandings. Include a disclaimer in your contract for owner-supplied materials. Require the option to provide a substitution if an item is not available for an extended period. Make it clear that manufacturers’ warranties will be passed on to the owners. Delineate responsibility for registering products or obtaining rebates. Don’t assume that an owner will know how allowances work just because they are included in your contract. Provide the additional information listed above in order to avoid disputes!