House Value Jumping? Save Your Home Improvement Receipts

A tax time bomb is ticking for an increasing number of people who have been lucky enough to see big gains in the values of their homes.

This is especially true in and around cities like New York, Los Angeles, San Francisco, Boston and San Diego, where home prices have increased smartly over the last decade or two. There, single homeowners with gains of over $250,000 and married people who have notched at least $500,000 could end up paying federal tax of as much as 23.8 percent on real estate gains over those amounts when they sell. Additional state taxes loom for some of them as well.

If you are in this situation or think you may be just when you need those gains to live on in your old age, there is a small pile of paperwork you need to start filing away now and keep until you sell the home. That paperwork is for all the improvements you have made to your home. The cost of those improvements counts against the gain. Even a single remodeling can offset the gains by well into the six figures.

Just how many people might this tax affect? I asked the number crunchers at the real estate website Zillow to take a look. Currently, they believe that 3.8 percent of the homes around the country are already in the tax zone for single people and that 1.2 percent have reached the threshold for married couples. The number of people affected is much higher, however, in expensive cities. In San Francisco, for instance, a quarter of all homes have a gain of over $250,000, thus having a tax impact on any single owners. More than one-third of the homes in San Jose, Calif., do, too.

For married people, the numbers become more frightening when you assume a 3.5 percent annual increase in home prices and look ahead 10 years. By then, 15.9 percent of the homes in the New York City area could be in for a tax bill if they’re owned by married people, along with 19.6 percent of the homes in Los Angeles.

Those numbers could be higher if real estate prices rise more quickly. They could also be lower, given that Zillow, in its projections, assumed that the homeowners were not moving to other houses or making improvements in that period. Their tax bills might also be higher if, like many people, they failed to realize that they should be keeping their receipts and closely tracking this potential tax.

See full article: http://www.nytimes.com/2015/06/06/your-money/house-value-jumping-save-your-home-improvement-receipts.html?_r=0

Related article: https://customclosetideas.wordpress.com/

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