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Wednesday, January 2, 2008
Capital gains exemptions on a primary home sale
Q. My wife and I are selling our home and relocating to another area. Can we roll the money over into the next house without paying capital gains?
A. Get a load of this: I checked with tax expert Robert Hoberman of Hoberman, Miller, Goldstein & Lesser, P.C. in New York City. He advised that if you own the home jointly and you’ve lived there for two of the past five years, you can exclude up to $500,000 of your gain when you sell (for singles, the exclusion is $250,000) and you don’t have to roll the money into another house to enjoy the tax benefit.
Q. I own a brownstone in Central Harlem that I’m trying to hold on to until I retire next year. Now I’m worried I missed my opportunity to sell it and get a good price because the housing market is slowing down. My house is in good condition, with all original woodwork. Can I still sell in the million-dollar range?
A. Right now, a 17-foot wide brownstone in good condition with a certificate of occupancy can easily sell for a million dollars or more.
But Harlem hasn’t peaked yet, so if you could afford to hold, it’s a very good idea. You’ll get a lot more money a few years down the road, once Harlem’s latest renaissance is complete.
If you can’t afford to hold, sell it to me! I own two brownstones there and I’d love to get my hands on another.
Q. I’m 23 years old with very good credit, and I’m looking to purchase a condo. I found a decent condo in Brooklyn, but I hear different things from people about buying a studio. It’s also in a rebuilding area. Do you think it’s a smart investment?
A. Ignore what people say. The people who love you most always tell you not to do something because they don’t want to see you get hurt.
Studios in the city are always in demand because there’s always someone young like yourself, just starting out, who needs one.
Later, should you decide to move up to a larger apartment, you can easily rent or sell the studio.
There are some up-and-coming Brooklyn areas (but yet to arrive) that will prove to be a good investment in the long run. And you’ll get the satisfaction of watching the neighborhood change because you were smart enough to buy early.
Q. I’d love to buy something in the Hamptons. Is there anywhere I can find a real bargain?
A. If you’re looking for a bargain in the Hamptons, I could more easily sell you the Brooklyn Bridge. The average Hampton house now costs close to a million bucks.
But take a look at Noyack, Springs and Hampton Bays, where there are lots of half-acre properties that have been listed for months. Aim for the overpriced homes that have been sitting on the market for more than six months. Don’t be shy about putting in a low bid of about 15% lower than fair market value...The year is at its end and they have little hope of unloading their property before the spring market begins.
reader comments:
I bought a house in Panama City Beach about 5 blocks off the Gulf in October of 2005. I was foolish in that I was talked into a negative-am loan. I have the place rented for $1250 per month, the minimum payment is now $1335 which I am making. Then interest only payment is about $1850 and as you might imagine the value has dropped below what I owe on the house even though I put down $28K. I paid about $235,000 but the value is about $225,000 or less now. That is, if I could sell it at all and that does not include a commission. I hear all this talk about the Gov. bailing out Wall street and maybe even bad mortgages, bad credit for individuals... At this point I am not in default but I am loosing every month. ANY SUGGESTIONS HOW I COULD GET OUT OF THIS MESS and if Uncle Sam is going to buy bad investment decisions from the brainiacts on Wall street how does little ol me get in on the free ride too? I feel if the Gov. is going to spend my tax dollars to bail out these phat guys that got themselves in a bad deal they should surly include the individual paying the bill.
Hi Rick; I'm not happy at all about the Wall Street bailout either; But this administration is well versed in capitalizing on fear-- just like how 9/11 was used to rush in and invade Iraq. Act now or there will be dire consequences! You might want to start by voting for Obama. Wall Street needs to feel pain to insure they recover. They may need to be saved, but not rewarded. I'm hoping that lawmakers force the Fed and Treasury to set a policy that bails out homeowners and protects taxpayers too. I'm skeptical. I personally think that only primary and secondary residences, that are owner occupied, should be eligible for any taxpayer financed programs.
Sorry, but sounds like you made a bad bet. You may have over estimated rental income (which may still go up too) and put in a relatively small down payment of around 10%; so you're paying for that decision now because the debt service doesn't support cash flow. According to your numbers you've lost about 4.3% of the value on your investment property. Your best bet is to weather the storm, and choose to be in the market long term. You stand the best chance of recovery by waiting the down cycle out. You will likely recover. Property has rarely been a 3 year investment opportunity; five years or better is a strategy where history is more on your side.
You should look long and hard at refinancing too to reduce your monthlies, or stabilize them at a point where you can have less long term exposure to loss. You will need to figure out how to wait out the down cycle. I'm not a mortgage expert, but you should be talking to several right now.