The Home Seller’s Guide To Tax Savings

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What the book covers:

The book discusses law changes that completely altered the way taxes are figured on profits and losses from sales of personal residences. But many owners of houses, condos or co-op apartments, even if they own multi-million-dollar dwellings, misunderstand—or worse, are totally unaware—of those changes. In this situation, ignorance isn’t bliss; it could be disastrous.

Like most overhauls of the tax code, they help some and hurt others. While the revisions deep-six or diminish taxes for most sellers, they drastically increase taxes for lots of sellers in expensive housing markets. And today’s tough housing market means many sellers suffer losses that generally are nondeductible, though there are several frequently missed exceptions that allow partial deductions.

The book explains how to choose and implement tactics that shrink taxes to the lawful minimum for sellers with profits above specified amounts. Sellers can “exclude”—meaning they pay no taxes on—profits of as much as $250,000 for single persons and married couples who file separate returns and $500,000 for married couples who file joint returns. But sellers with profits that exceed the exclusion ceilings are liable for taxes. Sellers qualify for the exclusion only if they owned and used their dwelling as a principal residence for at least two years out of the five-year period that ends on the sale date.

Profits significantly above the exclusion caps have become commonplace, particularly for individuals who have owned their dwellings for lengthy periods. It’s now more important than ever for sellers to familiarize themselves with often-overlooked, perfectly legal strategies that enable them to decrease their federal and state tax tabs by many thousands of dollars.

And sellers can discover so much more in the book’s discussion of a broad range of topics. They include changed rules for long-term capital gains and the notoriously complex alternative minimum tax. The AMT now snags more and more far-from-wealthy folks who claim unquestionably legal deductions that they have come to take for granted. The book analyzes the effect of those changes on sellers and describes IRS-approved tactics that make it possible for them to sidestep or lessen the effect of the AMT, which disallows deductions for state income taxes and local real estate taxes. Also, it shows how to escape hefty penalties for underpayments of estimated taxes.

There are lots of other opportunities to staunch the hemorrhaging to the IRS. For instance, widows and widowers are consistently clueless about a special break that allows them to slash or even erase taxes on their gain from the sale of an inherited home. The home’s basis (original cost, plus improvements, in most cases) is “stepped up” to its value on the date of death of the previous owner. Translation: IRS forgiveness of capital-gains taxes on the amount the home appreciates during the previous owner’s life.

Then there are couples who plan to divorce or legally separate. Splitting spouses should become knowledgeable about surprisingly complicated rules for home sales and how to resolve their competing interests.

The book’s detailed discussion of casualty losses helps the tens of thousands of individuals whose homes or other properties are damaged or destroyed by floods, hurricanes and other natural disasters that strike repeatedly every year. And it covers legislation that authorizes increased deductions for casualty and theft losses attributable to natural disasters.

Add to the complications recently enacted tax breaks for the growing number of homeowners who owe more on their mortgages than their dwellings are worth. Complex relief provisions benefit qualifying owners whose debts are reduced or canceled in mortgage meltdown transactions.

None of the other books for consumers are as detailed and helpful as Julian Block’s Home Seller’s Guide to Tax Savings. In fact, none of the books written for attorneys, accountants, enrolled agents and other tax professionals are as detailed, especially in Julian Block’s coverage of foreclosures and short sales.

Reviews:

James E. Maule, a professor at Villanova University School of Law and Graduate Tax Program, blogs on taxes.

Below are his takes on the book.

Just About Everything Involving a Home is Affected by Tax Law 
The book contains helpful sections that address particular situations. Julian describes the issues facing widows and widowers, divorced individuals, and unmarried couples who cohabit. He also explains the impact on computing the exclusion of using a portion of the residence as a qualified home office. He describes the treatment of life estates in the residence, the complications caused when vacant land adjacent to the principal residence is sold, the disappointing consequences of selling rent control rights in a rent-controlled dwelling (spoiler: the exclusion doesn’t apply), and the much better consequences of selling condominium units and cooperative apartments. Julian also explains the consequences of short sales, foreclosures, insolvency, and debt forgiveness, all of which have become far more common than they were ten or twenty years ago.

When the gain from selling a residence must be taxed, because the exclusion is insufficient to cover the entire gain, the taxpayer faces a possible need to make estimated tax payments, the complexity of computing the tax on capital gains, and the application of the Medicare surtax on investment income. Julian takes the reader through an explanation of what these issues involve and how to deal with them.

The computation of gain depends in part on the selling price and in part on the taxpayer’s adjusted basis in the property. In most instances, the computation of basis begins with cost, though for gifts it begins with the donor’s basis, and for inherited property it begins with fair market value. Adjusted basis is then computed by taking into account closing costs, and improvements. Julian explains how these rules work and gives tips on how to maximize adjusted basis, including the need to keep records, and points out how condominium and cooperative apartment owners need to pay attention to the information provided by the condominium or cooperative association. In connection with the determination of basis, Julian provides an explanation of the new regulations issued by the Treasury to distinguish repairs from improvements. Although improvements usually are not deductible, they can be if they qualify as medical expenses, and Julian devotes a few pages to explaining how this works.

Though generally losses on the sale of a principal residence are not deductible, there are exceptions, and Julian digs into these. He describes the tax consequences of selling a former principal residence that has been converted into a rental property. He explains the casualty loss deduction, and though he discusses some cases and rulings involving thefts not related to home ownership, the stories generating the tax issues in these situations are well worth the cost of the book (small spoiler: thieving roommates, fortune tellers, adultery cover-ups, disgruntled dance studio customers, the crushing of cars parked in no-parking zones, friends wrecking cars before insurance was purchased, and children abducted by former spouses).

Julian also explains deductions connected with residences, including mortgage interest, mortgage loan points, and real estate taxes. He also discusses the deductions arising from the use of a portion of a residence as a qualified home office.

The book closes with several questions, presumably from readers of earlier editions, and Julian’s answers. It is interesting to see the variety of situations people encounter, although unfortunately too many of them involve casualties to the home.

As has been the case with his other books I’ve had a chance to review, I recommend this one. It is something that anyone owning a home, renting out a home, thinking about buying a home, or selling a home will find very useful.

Revised Edition of Book on Taxation of Residence Sales: Still Risky to Leave Home Without It

Almost five years ago, I reviewed Julian Block’s “HOME SELLER’S GUIDE TO TAX SAVINGS.” I concluded that it was “useful,” “solid, well-organized,” and a book that “every real estate agent and broker in the country who handles residential home transactions ought to acquire. The new version is no less useful, no less well-organized, and no less informative. Julian continues to provide numerous examples, and to delve into “almost every possible variation on the home sale theme” as he did the first time around. He continues to focus on the issues specifically affecting surviving spouses, divorced and unmarried individuals, unmarried couples, owners of condominiums and cooperatives, and those who have used part of their residence as an office in home, to mention some of those to whose problems he gives attention. The checklists in the book have been retained and updated to reflect developments in the tax law. The discussion of record retention remains no less important than it was five years ago.

At a time when taxpayers are realizing losses on the disposition of residences because of the housing market collapse, Julian chapter on when losses can and cannot be deducted is especially timely. No less important is the chapter that deals with insolvency, foreclosures, and debt cancellation. There are chapters on casualty losses, home improvements in the form of medical expenses, and the mortgage interest deduction, though again Julian leaves the details of other home-related tax issues, such as real estate tax deductions and the computation of depreciation for home offices, to other books. That makes sense considering the basic theme of the book is residence sales.

There continues to be all sorts of misinformation circulating on the Internet and among home sellers, and there accordingly continues to be a need for Julian’s book. My suggestion five years ago that real estate agents and brokers get themselves a copy is no less valid today than it was then. The numbers of people selling homes without using realtors continues to increase, and they, too, would benefit from having a copy of Julian’s book.

From MAULED AGAIN

A New Book on Taxation of Residence Sales: Don’t Leave Home Without It

“Julian Block’s Home Seller’s Guide to Tax Savings”…is a solid, well-organized explanation of the tax rules that apply when someone sells a home. Its numerous examples illustrate almost every possible variation on the home sale theme.

The book isn’t designed so much for the tax professional as it is for the person who is not schooled in tax law. My own personal experience, taken in conjunction with anecdotes from friends and families, suggests that every real estate agent and broker in the country who handles residential home transactions ought to acquire Julian’s latest book. Why? Because too often they are either giving bad tax advice or giving advice on other matters that reverberates in a bad way when it’s time to file tax returns. There are times when it isn’t expedient or cost-efficient to retain a tax expert, and yet someone needs to inject some sensible tax law information into the conversation. Julian’s book does that. As more and more people sell their homes without the assistance of realtors, the risk of bad tax advice or missing tax advice becomes more serious. These folks, too, are less in need of a professional treatise or an IRS publication on the subject than they are of an easy-to-read and accurate explanation.

From NATIONAL ASSOCIATION OF REALTORS

Tax Saving Secrets Revealed

The tax code is complex and often difficult to understand, including when it comes to the sale of a home. Help your sellers understand the rules and ways in which they can save money with Julian Block’s book, Home Seller’s Guide to Tax Savings.

What was your main goal in writing this book and how can it serve as a resource for REALTORS®?

Block: My perception is there is a need for this type of book. It’s a way for the REALTOR® to reach out to their clients and provide them with a resource that clearly outlines tactics to reduce the amount of taxes owed following the sale of a home.

From FINANCIAL PLANNING MAGAZINE

The real estate rush may be cooling off for the moment, but that doesn’t mean that individuals aren’t still moving houses. And when they do, Julian Block is the go-to guy for advice on the most tax-efficient way to handle a sale…His book thoroughly explains how to take best advantage of…tax-law changes that govern buying and selling a primary residence.

Block, a frequent contributor to Financial Planning, is an acknowledged authority on tax planning. He…gets into the nitty gritty, providing details like how a widow can claim a step-up in basis on her late husband’s “half” of a long-time family home if she chooses to sell…It’s details like these that make the guide a valuable reference, for you and for your clients.

From NATIONAL ASSOCIATION OF PERSONAL FINANCIAL ADVISERS

Many individuals own homes that have significantly appreciated since they purchased them and need to understand the tax consequences of selling a home. If you are seeking information about federal income tax issues for home owners and sellers, Julian Block’s Home Seller’s Guide to Tax Savings is a terrific reference.

From REALTY TIMES

Julian Block’s Home Seller’s Guide To Tax Savings Comes Just At The Right Time. It just might be the perfect closing gift. Julian Block…has written an accomplished guide for sellers on how to lower their taxes…this book is bound to be a helpful guide.

From INMAN NEWS

Taxes and real estate go together like butter and toast. Whether a client is buying or selling a home, rental property or commercial property, they need to know the tax ramifications involved.

This is particularly important for high-income individuals, whose taxes have gone up over the last few years due to tax hikes enacted to help fund “Obamacare.” However, unless a real estate broker or agent is a bona fide tax professional — for example, has an MBA or other specialized training in taxation — he or she should not give clients detailed tax advice.

As a real estate professional, you are licensed to help your clients buy real estate, not serve as their professional tax adviser. If you give tax advice and it turns out to be wrong, it could cost the client a bundle of money — and leave you facing a malpractice lawsuit. That said, the tax aspects of real estate ownership are something every buyer should understand. Real estate professionals need to understand them as well.

Unfortunately, real estate taxation is complex, and not getting any simpler. Just figuring out something seemingly basic, like how much taxable profit a homeowner earns on a home sale, can be a nightmare (good record keeping makes this much easier).

Just figuring out something seemingly basic, like how much taxable profit a homeowner earns on a home sale, can be a nightmare.”

An excellent source of tax information for homeowners, would-be homeowners and real estate professionals is “Julian Block’s Home Seller’s Guide to Tax Savings: A Tax Guide for Buyers, Sellers, Foreclosures, Short Sales and More.” This is an e-book written by longtime tax expert Julian Block. It covers pretty much everything you need to know, including the home sale tax exclusion, short sales and foreclosures, record keeping, and deductions for homeowners.

This easy-to-read book is full of information you’ll have a hard time finding anywhere else. For example:

  • The IRS allowed a partial home sale tax exclusion where a single mother claimed she had to move less than two years after she purchased her home because one of her children was subjected to extreme bullying at school. (PLR 20082016.)
  • The Tax Court permitted a New Yorker to take a $19,000 theft loss deduction for money and property he gave a fortune teller in an attempt to relieve his depression and other mental problems.
  • The courts have permitted a medical expense deduction for installing an indoor pool for use by a homeowner with severe back problems.

All in all, the book is highly recommended.

 

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