Understanding Capital Gains In Real Estate

When you sell a stock, you owe taxes on your gain — the difference between what you paid for the stock and what you sold it for. The same holds true when selling a home (or a second home), but there are some special considerations. How to calculate gain in real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis.

To calculate, follow these steps:
1. Purchase price: _______________________

The purchase price of the home is the sale price, not the amount of money you actually contributed at closing.

2. Total adjustments: _______________________
To calculate this, add the following:
Cost of the purchase — including transfer fees, attorney fees, and inspections, but not points you paid on your mortgage.
Cost of sale — including inspections, attorney fees, real estate commission, and money you spent to fix up your home just prior to sale.
Cost of improvements — including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace.

3. Your home’s adjusted cost basis: _______________________
The total of your purchase price and adjustments is the adjusted cost basis of your home.

4. Your capital gain: _______________________Subtract the adjusted cost basis from the amount your home sells for to get your capital gain.

A Special Real Estate Exemption for Capital Gains since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:
You have lived in the home as your principal residence for two out of the last five years.
You have not sold or exchanged another home during the two years preceding the sale.
You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.

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DOES MOVING UP MAKE SENSE?

With so many great opportunities to buy a home in every price range, does moving up make sense? These questions will help you decide whether you’re ready for a home that’s larger or in a more desirable location. If you answer yes to most of the questions, it’s a sign that you may be ready to move.

1. Have you built substantial equity in your current home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.

2. Has your income or financial situation improved? If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving.

3. Have you outgrown your neighborhood? The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good. For example, you may have realized that you’d like to be closer to your job or live in a better school district. Find a Pasadena Real Estate Agent who can help.

4. Are there reasons why you can’t remodel or add on? Sometimes you can create a bigger home by adding a new room or building up. But if your property isn’t large enough, your municipality doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.

5. Are you comfortable moving in the current housing market? If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.

6. Are you able to secure an attractive interest rate? A low rate not only helps you buy a larger home, but also makes it easier to find a buyer. Search for mortgage rates.

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WHY ARE YOU RENTING!

Why are you renting......when you could be a home owner ?

Why You Should Buy a Home Now
These days there is literally too much information for homebuyers to make a decision sometimes. Fear can prevent first time home buyers from ever acting on their dream of home ownership. When you look at facts, though, buying a home makes as much sense now as it ever has.

With home prices going down now in some markets, the question is beginning to surface more often, "Is now a good time to buy?. If there's any risk that it may go down in value, why, really should anyone buy a home instead of renting?" It may be true that renting is cheaper than buying right now, but historically speaking, it is only a matter of time before rents will go up. They always have, and they always will. That brings us to the number one reason to buy a home, which is the very reason rent always goes up:Appreciation or Rising Values - For most Americans, buying a home is one of the smartest financial decisions they will ever make. Look at the difference in net worth between homeowners and renters according to the Federal Reserve:The difference in net worth of homeowners vs. renters is more pronounced as income rises. The average American who earns $60,000 per year and rents has a net worth of only $25,000. The average net worth of that same earner who is a homeowner is nearly $300,000!There are two main reasons this happens. First, there is the "forced savings" aspect of home ownership. As payments are made on a home over time, the balance of the mortgage will obviously fall. This is essentially "forcing" a monthly savings that is the portion of the payment that applies toward the principal amount of the mortgage. Secondly, there is long-term property appreciation. Homes have always gone up in value over time, even though there are bound to be some down cycles. Long-term home ownership almost guarantees a higher net worth. Pride of Ownership - Most homeowners will admit they like owning a home because they don't have to ask before they do anything to the home. They can paint it any color, they can add a new front door, change the shutters, and they have the right to do it because it's their home! This is the reason most people take care of a home they own better than one they rent. Plus, no landlord can go up on your rent or terminate a lease and force you to move. It makes a difference when applying for credit, in personal relationships, and possibly even in employment considerations. Pride of ownership is hard to measure in terms of money, but is a big part of why people will always want to own their home.

Tax Benefits - Arguably, tax benefits of home ownership are not as great as many owners understand them to be, but most do benefit from the mortgage interest deduction, even if in a small way. Home ownership has been a part of our heritage, and represents the largest part of the average American's net worth. There is a good chance that owning and paying for a home is the only way some people will be able to retire. And the earlier you can get in the game of ownership, the better off you will be sooner in life. Owning a home is not only still the "American Dream", it is an important part of our national economy. The financial benefits can easily be seen and experienced over the long run. The other benefits, while not so easy to measure, may be the most important ones. Buying your first home, even in a "down" market is still a wise choice, and will eventually be one of the best financial decisions of your life. Search Pasadena Homes and Pasadena condos for sale. Find a Pasadena Real Estate agent.

Lake @ Walnut: New Live Work Condos

For those of you looking for a Pasadena Home where all the active, interesting, culturally rich and just plain fun elements of your life “intersect” in one, sought-after Pasadena address. Just think Lake at Walnut, a new 6- story residential building of contemporary flats and town homes above ground floor retail, named for its stylish address at the intersection of Lake and Walnut avenues. Everything's right down the street, or an easy drive or Metro ride away.

A home at Lake at Walnut puts you right at the center of all things wonderful in the Pasadena intown scene. Walk to the colorful shops and eateries of Old Town, or the many exciting destinations of Colorado Boulevard. Easily commute via the convenient Gold Line or the nearby 210 Freeway, just 2 blocks away. Spend more evenings at the Ahmanson or the Disney Music Hall, just 30 minutes away by Metrolink. And what could be better than a quick grocery pick-up at Ralph’s, right across the street? Homes range in size from 945 to 1,767 square feet, with generous live/work spaces from 2,133 to 3,346 square feet. It all comes together at Lake at Walnut. One and two bedroom floor plans available with prices starting at the $535k range for a 1 bedroom and go upward and are scheduled to be available in September to move in.

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Tips For Buying In A Competitive Market

Increase your chances of getting your dream house in a competitive housing market, and lower your chances of losing out to another buyer:

1. Get prequalified for a mortgage. You’ll be able to make a firm commitment to buy and your offer will be more desirable to the seller.

2. Stay in close contact with your Pasadena Real Estate Agent to find out about the newest listings. Be ready to see a house as soon as it goes on the market — if it’s a great home, it will go fast.

3. Scout out new listings yourself. Look at Web sites such as REALTOR.com, SoldbyRamiro.com or browse your local L.A. Times real estate section, and drive through the neighborhood to spot "For Sale" signs. If you see a home you like, write down the address and call your real estat agent. Your Pasadena Real Estate Agent will be able to schedule a showing and find out more information on the property.

4. Be ready to make a decision. Spend a lot of time in advance deciding what you must have in a Pasadena home so you won’t be unsure when you have the chance to make an offer.

5. Bid competitively. You may not want to start out offering the absolute highest price you can afford, but don’t go too low to get a deal. In a tight market, you’ll lose out.

6. Keep contingencies to a minimum. Restrictions such as needing to sell your home before you move or wanting to delay the closing until a certain date can make your offer unappealing. In a tight market, you’ll probably be able to sell your house rapidly. Or talk to your lender about getting a bridge loan to cover both mortgages for a short period.

7. Don’t get caught in a buying frenzy. Just because there’s competition doesn’t mean you should or should not buy it. And even though you want to make your offer attractive, don’t neglect inspections that help ensure that your house is sound.

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Low-Cost Ways to Spruce Up Your Home’s Exterior

Make your Pasadena home more appealing for yourself and potential buyers with these quick and easy tips:

1. Trim bushes so they don’t block windows or architectural details.

2. Mow your lawn, and turn on the sprinklers for 30 minutes before the showing to make the lawn sparkle.

3. Put a pot of bright flowers (or a small evergreen in winter) on your porch.

4. Install new doorknobs on your front door.

5. Repair any cracks in the driveway.

6. Edge the grass around walkways and trees.

7. Keep your garden tools and hoses out of sight.

8. Clear toys from the lawn.

9. Buy a new mailbox.

10. Upgrade your outside lighting.

11. Buy a new doormat for the outside of your front door.

12. Clean your windows, inside and outside.

13. Polish or replace your house numbers.

14. Place a seasonal wreath on your door.

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8 TIPS TO GUIDE YOUR PASADENA HOME SEARCH

For many people, buying a first home is a rite of passage and ownership in part of the American dream. And while many excited hours are spent planning interior color schemes, choosing new furniture and dreaming of moving day, many first-time buyers spend equal amounts of time fretting and fearing the home buying process. Let’s face it, if you’ve never purchased a home before, the prospect can seem downright intimidating. There are many decisions to make—legal, financial and emotional, just to name a few. Luckily, there are steps you can take to ensure an enjoyable experience.

1. Research before you look. Decide what features you most want to have in a home, what neighborhoods you prefer, and how much you’d be willing to spend each month for housing.

2. Be realistic. It’s OK to be picky, but don’t be unrealistic with your expectations. There’s no such thing as a perfect home. Use your list of priorities as a guide to evaluate each property.

3. Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and closing costs. Then, talk to a lender and get prequalified for a mortgage. This will save you the heartache later of falling in love with a house you can’t afford.

4. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion, but be ready to make the final decision on your own.

5. Decide your moving timeline. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area? All of these factors will help you determine when you should move.

6. Think long term. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in this home for a longer period? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that will best suit you.

7. Insist on a home inspection. If possible, get a warranty from the seller to cover defects for one year.

8. Get help from a Pasadena REALTOR®. Hire a real estate professional who specializes in buyer representation. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. Buyer’s agent's are paid out of the seller’s commission payment.

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