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If you bought your home for $300,000, and it sells for $400,000, you've made a $100,000 profit, right? Well, not necessarily. Sometimes you have to spend money to make money…
Below are some of the expenses - including taxes - you might have when you sell your home. Please note that your situation may vary depending on where your home is located and other factors.
Repairs and improvements
Before you put your home up for sale, you might decide to spend some money to make repairs and improvements. Some improvements can help increase your sale price or even decrease the taxes you pay on the profit you make. To find out which types of improvements tend to have the best resale value, read "Improvements That Sell."
Even if you don't make major improvements, you should consider making smaller cosmetic improvements to improve your "curb appeal." Planting flowers, mowing the lawn, and repainting can all help make your home more appealing to prospective buyers.
Real estate agent
A real estate agent's sales commission will vary depending on where you live and the sale price of the property. A good agent can more than make up for the commission with a good sale price and less hassle.
If you don't work with an agent, you won't have to pay a commission, but you will have the expense of advertising listings and signs, not to mention the effort of showing the home and doing negotiations yourself.
Professional inspection
Buyers will usually have their own inspection done, but it's useful for you to have one done before you put your house on the market. It can help you find out about any defects so you know what exactly what you're selling, or give you time to fix what's wrong.
Additional fees
- Home comparisons or a professional appraisal can help you estimate your home's value and set a reasonable price. Read "Setting the Price" for details.
- Legal fees. You may want to have a lawyer look over the sales contract and help you with the closing.
- Prepayment penalty. You'll need to pay off the mortgage on the home you're selling, which may involve a prepayment penalty. Review your mortgage or ask your current lender for details.
- Moving costs can include packing supplies, van rental or movers, and more. See "Moving Costs" for details.
Time is money
It takes some effort to sell a home, and you should be prepared to invest time as well as money.
Open houses. Whether you're in charge of showing your home or your agent is, house tours
- may demand your time and impact your daily schedule.
- Cleaning your house. You want your home to look its best for prospective buyers. Cleaning doesn't necessarily cost a lot of money, but you'll pay in time and sweat!
Tax implications
If you sell your home for a profit, you can generally exclude any gain from income up to $250,000, or $500,000 if married and filing jointly.
To qualify, you must have used your home as your main home for at least two of the five years prior to the sale. If you had to move because of a job change, illness, or hardship before you lived there two years, you may be able to prorate the exclusion for the number of years you did live there.
Any gain over $250,000 (or $500,000 if married filing jointly) is taxable and must be reported. And unfortunately, if you sell your home for a loss, you can't deduct the loss.
If you made any home improvements that have a useful life of more than one year, they may help reduce the gain from the sale of your house. Qualifying improvements and additions add to the cost of your home thus decreasing the amount of gain realized from the sale. Be sure to keep records of your improvements and consult your tax advisor before selling or purchasing a home.
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