Downsizing your home tax implications – It is quite a familiar situation in America where you get to see people moving in and out of their houses every now and then. De-cluttering your house is quite a tiring task. However, the biggest difficulty arises when you have to get rid of all the pending taxes you had kept long waiting. These taxes have to be urgently downsized before being able to sell the property. This is an important financial aspect which has to be dealt with cautiousness and promptness. Simple work of mind will help you to build a good strategy which tackles off these tax bills.
The first thing which comes into play is called the cost basis. The actual cost of your house is called the cost basis. This sum can be augmented multiple times by incorporating the prices of all the improvements you had made in your house from the time you started living in it. It is therefore essential that you have kept all your home renovation records safe ever since because this is the time when they come handy. Every time you made changes in your washrooms, fitted the faucets in the kitchen, or made amendments in the garage, money spent will be added in the cost basis.
It is quite an achievement if you are able to sell off your property at a price which is collective of the cost basis and all the above-mentioned additive costs. This extra money will pave way for the pending taxes that have been ticking the clock. This extra gain is actually the long-term capital gain tax. Capital gain tax makes up to 23% of federal taxes for sellers who are efficient in the high purchase sales.
This is how you gain benefits from sales. It is not a fantasy when a married couple made up to quarter a million dollars of profit from strategizing correctly. They opted for the capital gains tax method, which is quite an intelligent choice. This is how you downsize your home tax implications!
In order to be eligible for this tax break, the property owner must have lived in and have owned the house for the two years out of past five. These two out of the last five years are criteria that need to be met by the seller. The condition does not say that the two years have to be consecutive.
If you do not have any plans of selling your house this year but have a clear idea of doing that some 10 years from now, then you should first and foremostly start organizing a record book for all the current costs you have applied on your house. This record will save you from bad times. This strategy will sell your house multiple times more than from the price you bought it in.
How Do You Determine The Cost Basis? The following improvements are can be included into your cost basis:
- Additions:Bedroom, deck, garage, porch.
- Lawn and grounds: fence, swimming pool.
- Systems: Heating, central air conditioning, central humidifier, air or water filtration, wiring, security system.
- Interior: Built-in appliances, kitchen modernization, fireplace.