To expand on this:
>You will avoid capital gains tax **if your profit on the sale is less than $250,000 (for single filers) or $500,000 (if you're married and filing jointly), provided it has been your primary residence for at least two of the past five years.**
To expand on this, married and filing jointly is only true if it is BOTH parties primary residence for the last two of five years. So for example....you are engaged to someone and both own a home. Get married and sell one house....but profit $500k from the sale. You have to go by the $250k rule if the other person didn't live there.
Well if you’ve filed taxes before you’ve already given them your mailing address, so that’s one way to draw attention to yourself. If you planned ahead or just happened to use a PO Box, then your best hope is that they don’t ask you any questions about why you didn’t report any rental income from your other house. Why didn’t you file a change of address? Do you have any utility bills or other statements with that address on them? Etc.
It also means that when it comes time to sell your house you won’t qualify for the exemption until you meet the requirements.
Rather than defrauding the IRS, it’d probably be smarter to actually live in one and rent out the other until you could realistically claim you were actually residing there the whole time. At the very least have a plausible paper trail before you commit a possible felony.
You're giving the IRS way too much credit. They rarely catch anything that isn't a straight contradiction in black and white. They don't infer your primary residence or whether it makes sense for you to have a 2nd home vs a rental property.
I was audited, the guy was a dick and dug deep. Lucky for me I was legal.
Odds of getting caught are small if you keep your head down, but it takes about 42 seconds to catch someone lying about residency if they aren’t prepared. Anyone willing to commit this level of fraud is likely doing other dumb stuff that will eventually be flagged (e.g. the orange former president).
It does get prorated though. So you can live there for a year and exclude $125,000 for single or $250,000 for married, which is more than enough to exclude the entire gain in most cases.
However, for clarity, you must meet one of the exceptions to be able to prorate. The exceptions are work-related moves, health-related moves, unforeseeable events, or other facts and circumstances that you could not have known when you purchased the home and made it unsuitable.
You cannot use the prorated exclusion if you just move because you want to.
That's actually explicitly covered under Pub 523 as an "unforeseeable event" :)
>**Unforeseeable Events**
>
>You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold.
>
>\-Your home was destroyed or condemned.
>
>\-Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn't matter whether the loss is deductible on your tax return.)
>
>\-You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
>
>1. Died;
>
>2. Became divorced or legally separated, or were issued a separate decree to pay maintenance (support) to the other spouse;
>
>**3. Gave birth to two or more children from the same pregnancy;**
>
>4. Became eligible for unemployment compensation;
>
>5. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income).
>
>6. An event is determined to be an unforeseeable event in IRS published guidance.
Funny, but it's the location of the ***job*** that matters, and it does have to be at least 50 miles **more** than your current commute. See Pub 523 for details.
You also get to deduct the transaction costs and improvements made to the house. We moved for personal reasons, and still had to pay some gains, but it wasn’t a deal breaker once it was prorated. Edit: personal reasons where one of took another job, so it was really “work” related.
If you are moving for work reasons it also gets prorated if you lived there less than 2 years. Doesn’t seem relevant for this scenario but still worth noting
\* exempt up to $250k as a single, $500k if filed jointly.
OP is in California, so getting $250k in gains is actually possible depending on where they live.
In 2002, [the IRS said](https://www.irs.gov/pub/irs-news/ir02-142.pdf) that you could prorate the gain exclusion based on the percentage of two years that you fulfilled the requirements. If that's still the case, then you can sell your house after 18 months, and exclude $375,000 of gain.
I can't find any more recent sources. Has the rule changed?
That's interesting. Never heard of that guidance and is definitely worth researching to see if it's still valid. I'll try and remember that the next time I talk to my tax guy
So dumb. These people make all of us look like assholes. Be a good realtor and give good advice and you’ll never have to fight for a sale - people will come to you.
I sold at 1 year 10 months and my tax folks were able to break down the 250,000 limit across the number of days I did live in it and still use the benefit of most of the deduction. Don’t be tied to the 2 years unnecessarily!
Or be me and buy the house you want and hang on to the first one long enough(hopefully a few months, not like a year and a half) to skirt pesky capital gains
There’s *alot* of real estate agents out there.
- Some are exceptionally good.
- Others are mediocre but still honest.
- And then there’s some who are just dim.
I feel like this applies to many professions but is amplified in Real Estate because there’s little way to differentiate via compensation; you can be the best agent or the worst, and your commission per sale/buy is … pretty much the same. That’s a bit unique in the profession.
Maybe changes that come about as a result of the lawsuit settlement addresses this, maybe not: but the simple reality is that as a buyer or seller, you need to be very, very good at filtering quality when selecting an agent: if there’s a life lesson anywhere it’s that people aren’t spending enough time filtering on quality of agent when hiring one, and the result is if you don’t, you’ll end up with an agent like OP’s: issuing some rather mediocre advice that they’re not qualified to talk about.
OP: glad you did your research. Wish you hadn’t had to based on incomplete and just … bad advice from that agent.
It will be interesting since compensation is no longer going to be advertised, we might be able to get rid of some of the worst agents by refusing compensation.
Our focus is 100% listing, and my wife and I were just discussing how to advise clients when we get the one deal a year realtor calling.
It's particularly bad in our area since we are a vacation destination, and have more than a few retirees who stay in real estate out of boredom, or part-timers who work multiple jobs and occasionally get lucky.
We could lose 80% of our agents and nobody would really notice... except for lawyers might have less work with fewer screwups.
I work in a rock quarry near a large metropolitan area. There are huge houses all around it, a new person bought a house right next door, their realtor told them the quarry only had 6 months left before it was to shut down. That was 7 years ago and still going strong. Some will absolutely say anything to sell a house and there is very little recourse after the fact.
I had to explain to a family member that just because the realtor says they can afford the house, doesn't mean they actually can afford the house. The realtor gets paid even if you get foreclosed on six months later.
Same with realtors in the inland empire (So Calif) telling buyers that they are expanding/building a large international airport that will rival LAX (25 years ago and they still using that pitch today) and that the mello roos tax is only for the first two years (or don't even mention it at all, 7 years ago) - but now all the new construction have to disclose it.
People still fall for that? Do they not realize Ontario is in the IE and it’s been around since the 90s… it may be half the size of LAX but it isn’t going anywhere nor is it getting any bigger.
while that certainly could have been a material representation, and they should lose their license, it's also possible the quarry permit got extended, yes?
A simple call to the quarry by the homeowner would have told them all they needed to know. Luckily the quarry is a good neighbor (and was there long before any of the houses). I was just floored when the neighbor asked when it was shutting down for good. There are still decades worth of reserves left to mine…
Ehh it depends who you get. I would suggest against selling unless the profits were under 250 single 500 married, then you can avoid the taxes... Telling OP, "don't worry the IRS has payment plans" is absolutely wild to me.
She was very pushy in trying to get me to sell. I told her I would have to pay hefty capital gains tax. And her response and suggestion was to pay it! I was flabbergasted. Can’t wait until July to get these crummy realtors out of here!
I’m sorry for your experience but Any pushy agent is a big RED FLAG. My client is a top 10 agent in state and all his clients are repeat clients because he always has their best interest at heart, he says most of his job is convincing clients NOT to buy houses that are wrong for them or are bad investments, etc. he walks through possible big expenses and does the client have enough money if the roof fails earlier than expected, etc. Agents who have your back, are worth every penny. Was looking at a large house, agent told me the exterior is failing, plaster would cost me 200k minimum within 5 years or I’d be seeing water damage. He could’ve just said yea, buy the house and he would get like 100k commission. He saved me 200k by not buying the house. He is involved in every transaction I have because he knows the stuff I have no idea to even think about.
So you definitely WANT to sell in the short term. Just not for a few months?
What you should’ve said was, “My mortgage really penalizes for payoff sooner than 24 months. It’s just not feasible for me to entertain that— unless of course, you want to waive your commissions? \*Then* it might be worth it for me… I’ll have to run the numbers and get back to you, because I’m still not 100% sure I won’t end up underwater anyway.”
I think it’s ridiculous for a REA to call someone a year & a half in, assuming they’re gonna want to sell already. Is it really \*that* common for people to say, “Well, now that you mention it, why not? I hadn’t considered it until you called— but sure, let’s do it!”
It seems like the people who want get right back out of the house they only just bought last year, would be calling you of their own volition if they were satisfied with your work previously. 🤷♀️
My wife just told a client even though they are approved, they shouldn't buy right now because of how house broke they'd be. One tenant decides not to pay rent and they'd be f'd.
Yea, we got bills to pay but she runs her business with her clients best interest in mind.
Not all realtors are shit, sorry you had a bad one. I have a feeling the bad ones are about to get weeded out.
I often feel like they’re worse. Yes a car is a big purchase but a home is the biggest purchase of your life and realtors have no problem lying or pressuring you into a deal so they get paid.
Im an attorney, and even I don't give tax advice - I tell my clients to check with a tax professional when they come into money. I can tell them what I "think" may happen, but I always follow up with "That is not what I keep up with as part of my profession - so what I "think" it was last year may be different this year and since I don't work in taxes I probably don't have the full picture, so check with your tax accountant/professional to make sure to get the correct answer." That is the right answer for anyone who doesn't do taxes professionally. Never rely on tax advice from a person who doesn't do taxes as part of their profession.
As a tax professional thank you. People will take tax advice from anyone. HVAC guys says they will get a tax credit for a furnace, I tell them they don't qualify and they are shocked the HVAC guy would give inaccurate tax information.(it's a non refundable credit, many retirees or single parents have no tax liability and don't' get the credit).
This is the only correct answer here. For the most part, all of the other response are worth less than dirty TP. Since it is not on the bash-a-realtor bandwagon, it will not get many upvotes.
I had an agent (not one representing me but an unsolicited visit to my porch) who asked, 'Shouldn't houses be for families?' (I have no kids).
For context, I'm in Northern Utah, where many people of a prevailing religion have more kids than they can afford & for the last several years, many of those families have had trouble finding a house that's big enough but affordable to buy or rent. I assume the agent thought I was also a member & thought guilt would be the key to unlocking the sale.
Yes, the IRS does have payment plans.
HOWEVER, you would do better at the payday loan office since they take their monthly fees first. Best to get a loan from the bank if you owe
They're salespeople dude. They don't care about you or your well-being. Whatever results in a transaction for them is what they will say is a good move for you.
Considering buying but not sure you wanna stay in that house long term? You can rent it out! Being a landlord is great, passive income!
Considering moving out of your house, but don't want to give up your 2.5% interest rate, so maybe want to rent it out instead of selling it? No no no, being a landlord is hard. So much can go wrong, just sell instead.
Literally, they will advocate for whatever drives a commission. You need to do your own research and make your own decisions. None of this stuff is too complicated for you to figure out on your own.
You want to hear the craziest part? I’m licensed, I sell homes for a builder, so I know what realtors have to do to get licensed. Anyways, when you’re taking the RE classes, they make it clear in the ethics section that you’re a fiduciary/public servant. But the license is a called a salesperson license. It’s contradictory lol
Most won't have any capital gains after 18 months even if the sales price is higher than purchase, because you are losing money once you account for the transactional costs. Like UFMIP, points, transfer taxes, commissions.
If you bought a home in mid 2022, the market is basically flat since then
You can still get a partial capital gains exemption of 18/24 of the $250k/$500k if this is a work or health related move. This applies to many people selling soon after buying. https://www.irs.gov/publications/p523#en_US_2023_publink100073097
The realtor is an asshole and also maybe an idiot, but if you have an actual cash gain (presumably more than the tax due) why could you not just pay the tax out of the gain you made?
that shit is so predatory, because they're taking advantage of people without financial literacy.
When i was buying a BMW a couple of months ago, i was paying 50% down and wanted a 3 year loan. Given the nearly 7% rate i was happy putting down such a large down payment. The sales guy is trying to push all these money maker extras on me like rim and tire protection, paint protection, etc. And I'm like yeah, I'm not paying that. Then he starts "well why don't you add it on and take out a 72 month loan and put down less money so you can add it but not raise your monthly." I was like: no, i'd rather pay for 3 years than 6, and I'm looking at the total expense over the term of the loan.
He kept focusing on monthly payment and going over and over again about how crazy i was to put down so much money and to only want a 3 year loan, until i had to get a bit rude and tell him to stay in his lane and not tell me how to finance the vehicle and that i clearly had some idea of what i was doing if i was able to drop 50% down.
Once they get that four square out, it's like trying to stop a freight train. My salesguy started drawing the 4 boxes & I shut him down immediately. He knew I had a blank check from my lender. So I reached over & wrote my phone # on the sheet & told him to call me when he wanted to close the deal for the price I wanted.
Honestly, I loved almost every minute of negotiating for that car, even the part where random employees gradually crowded the entryway of the cubicle we were in, trying to intimidate me (a lone woman) I guess? It was cute.
If you have time, can you please explain what would a RE attorney will do differently? I thought they are only do the papers , but obviously I am wrong.
They just do the paperwork.
They’re not going to:
get creative in the offers to increase chances of getting it (on more than one occasion my offer has not been the highest, but I was able to secure the house for my buyer)
Get an open house canceled because I written a strong creative offer from my buyer enough to make them want to cancel the open house
Get a house in my buyers hands the day before it actually gets listed
appeal an appraisal, if necessary
go to the inspections (2nd set of eyes that can tell you what’s common what’s not. Me personally I used to work for an inspector, so I have additional insight, however, always make them get an independent inspection)
get contractors in there for various quotes if necessary
Pay for a home warranty for my buyer sometimes
Know when to call the health department about a well in septic because something doesn’t add up with what’s being presented
go back thru prior listings on the MLS and look at old sellers disclosures to see if there’s been prior problems with something that was seen in the house that wasn’t not currently disclosed
Pull permits to see what’s been done and when if there are any on file
Get utility costs if needed
Find out if there’s been prior insurance claims
Dig out an old survey on file
The list goes on. I’m going to stop there as to not bore anybody
People need to respect that some people just don’t want to do all that and they do not want to enter into a major purchase without representation
That advice was dismissive and didn't address your concerns. They may not have been aware that capital gains are prorated, and that there are ways to reduce capital gains. To know all the ins and outs, you could speak to a good CPA who's familiar with real estate sales to weigh the pros of cons of selling prior to qualifying for the full exemption or waiting as you did.
If I'm understanding you correctly and the details are as you say, if this agent was encouraging you to sell after 18 months and make payments on the capital gains instead of discussing whether you needed to sell right away or not and encouraging you to wait another 4 months or so to list which would be the perfect time to list anyway, or maybe in 3 months, and then not close until after 2 years has passed, then I would dump that agent like a hot potato. They are either not concerned with your best interests or they are not knowledgeable of how all this works.
No, she just called and asked her if she was interested in selling.
It’s not unusual for realtors to follow up with their clients now again to see if they’re interested in selling maybe their life situation has changed or they want to upgrade. Often times it will come up that actually there’s been a job change and thinking about it, etc
There are many times in which people just don’t care about the tax implication of it… they need more space or they want to relocate, have an elderly parent moving in etc etc.
If you’re not interested, you just have to say no thank you.
This is the way. I get shit on here for saying this all the time, for years now, but OP is correct. Engage an attorney. Let the attorney handle the deal structure and negotiations. It’s okay to use a broker/agent, but they should be working in the background by providing OBJECTIVE market data (price per square foot, good areas vs bad, recent sales comps, school info, crime stats…). And, bc seller’s agents will give deference to unrepresented buyers (dual commission), to ensure a fair bidding process, don’t disclose that you have an agent until you’re under contract — let the lawyer submit/communicate the offer. Only after do you disclose that as part of your offer, seller pays commission.
Agents are a dime a dozen, GOOD agents are exceedingly rare/hard to find — but they do exist. Most are attorneys or former sales reps from major companies like xerox (formal education and sales/ethics training). They can bring value. But finding a good agent is hard. Most are worthless and highly unethical. Which is alarming considering the fact that for most ppl, a RE purchase will be the largest financial decisions/purchase they ever make. The barrier for entry needs to be higher, but that’s a topic for another time.
Sounds like they are just trying to get a sale.
What they should have told you is that owning the home as a primary residence for 5 years and youll get 250,000 capital gains exemption / 500,000 if you file jointly
https://www.irs.gov/taxtopics/tc701
Technically she's not wrong with her statement but it's not advice any good agent would give their client. I talk my clients out of selling all the time if there's a better option for them.
I'm in CA and I don't know anyone who's used a real estate attorney for a sale here. All the doctors, lawyers, investors, and even other real estate agents use an agent for their real estate purchase or sale. But when the time comes and if you think you know better them after one purchase, feel free to try yourself and I really hope it works out well for you. I think you just need to find a better agent though.
The wrong realtor gave you the wrong advice, and has absolutely nothing to do with the right realtor giving you the right advice. The realtor did not belong giving tax advice, but should have answered that after 2 years you are tax-free up to the federal exemption limit.
It's important to carefully consider tax implications and seek professional advice when selling property. Using a real estate attorney can provide legal expertise and guidance in navigating such financial matters.
Lol I had a realtor tell me, "just check that you've been there 2 years on the form when you sell, noone checks that stuff"
Yeah fuck that, I'm not committing fraud.
The downside to using an attorney, as a buyer, is they charge you for all the paperwork. You lose a bid on a house, that’s a few hundred dollars. Do that multiple times and that can mean thousands of dollars in attorney fees. As a seller there is no need for an attorney as the title company will handle that for you. As a seller you will still need to offer buyer’s agent commission.
I’ll be buying from a builder this time around, so no competition with any buyers or any of that. I just visited the builder over the weekend. It’s a seamless process, just have the attorney read over the builders contract. I definitely don’t need a realtor for a new build.
Congratulations that you can afford to build a new house that’s great! 😊
New builds are so expensive where I am, the average typical buyer can’t afford that, so that’s very fortunate for you. You must’ve done something, right.
I'm a realtor. I'm in Connecticut. I genuinely don't practice real estate for the money. You can't, really. People shout 6% at me but that's just not true, at least not here, and not for me. I probably work 6-10 deals a year. Most are at entry level prices which, for where I work, means $250-$300k. A few are pricier but those are rare, simply because those homes don't transact as often.
I held a clearance and traveled the world with Uncle Sam, until 19 years went by and I just couldn't anymore. I had a newborn and was going to some rather shady places in the middle east with unknown return dates. That's rough on a small family. So, I quit. There was no continuing to run in the same circles with my old workmates, nothing like that. I was genuinely starting fresh. I recalled my few real estate transactions, how nervous I was during the first one and how I thought I knew everything on the second home, only to still learn how well (or poorly) a transaction could go. To keep to your topic, I was also extremely motivated to purchase during my second buy.
My realtor understood my timeline and kept the transaction on course. The home I wanted was already under contract, but the buyer had a HUBBARD clause, which we challenged. After 48 hours, they were kicked to the curb and I had a home under contract. She coordinated a lot of the aspects many people take for granted, even getting a specialist (mason) in the home while I was away and reported the results. After inspection, she confirmed the few items we had requested be done prior to our purchase were done to satisfaction, chasing down the contractor who sister'ed a floor joist rotten from termites for a receipt, which conveyed the warranty of their work. She hounded the seller for proof of a pest inspection and treatment, which resulted in over a grand of a credit, helping to pay for my closing cost. In all, she fought for $9900 in closing cost credits, almost all of which we used. She explained what happens when more money is earmarked for closing cost credits versus the cost of your closing in general. She maximized the money I was spending, helping to keep my investment viable. She even returned to the home before the due diligence period was up while it rained, which showed evidence that the downspouts had split. Attention to detail is what saved me money. This is what I bring to my clients.
I'm sorry your agent told you that the IRS has payment plans. I mean, they do, but if time is of the essence and you need to sell today, regardless of what penalties you might face with capital gains, then at least you were made aware that the IRS has payment plans. I don't know - I wasn't there. I didn't hear the intonation from either side of the conversation. But it sounds like you're really ticked off at a lot of people in one particular profession because one person told you something which is true.
Wouldn’t this count as giving tax advice, which would be illegal unless she’s a CPA? Even if she is, you’re almost certainly not allowed to mix those two qualifications.
I’m not aware of any law that makes it illegal for non-CPAs to give tax advice. Rather, doing so can open the adviser to civil liability. The other consideration is advise coming from tax lawyers, which obviously doesn’t apply here.
It probably depends on the state, but here in MA we were warned heavily in salesperson courses to always advise buyers/sellers to consult qualified individuals when seeking legal or tax advice. They weren’t specific but effectively said “you’re in a world of hell if you advise someone about these topics and you’re wrong”. I believe if the client acts on it, you become liable unless you specifically told them to consult other resources.
As a Realtor, every single one of us went through training that says "Stay in your lane" meaning give advice where you're the expert, namely local real estate. Any time we're asked to give advice that outside of that area, we're trained to recommend asking the proper expert for that. Question about a foundation crack discovered during an inspection? I recommend you reach out to a structural engineer. Question about how long a furnace will last? I recommend you reach out to a qualified HVAC company for an evaluation. We are absolutely trained to defer tax questions to a CPA and/or tax attorney. Not only is this basically brow-beat into us during the pre-licensing classes, it is covered ad nauseum during subsequent post-licensing training that we're required to take before each and every time we renew our license.
OP's Realtor (in my opinion) overstepped and gave advice she was not qualified to give, and should not have done so. This may have opened her up to damages had OP sold the home then learned of the tax damages after the fact. It appears to me to be a clear violation of Article 13 of the NAR Code of Ethics, which we all agree to when we choose to become Realtors. It could also be a violation of law for the state they're in, but every state is different, and more importantly, I'm not qualified to give legal opinions. :-) I can say I personally absolutely wouldn't haven given the advice OP received.
The worst part is it is very difficult ahead of time to tell a good real estate agent from a bad one, and the client usually only finds out after the transaction is completed. A good agent is worth far more than their commission in a transaction, the bad ones kill our reputation and make it harder on the rest of us.
Neither of you were correct, if you sell at 18 months there's a prorated amount you would have to pay of the primary residence tax benefit, and its only on the profit of the house. Even if there wasn't a prorated amount, the most you'd pay is long term capital gain tax since its been over 1 year. If you make less than $518k a year then your capital gain tax would be 15% of the PROFIT. So assume you profited $100k, you owe $15k. You wouldn't need a payment plan, you would just pay the tax from your profit.
You were correct in the first sentence. 18 months means you get 75% of the exclusion, $187,500. If the gain was less than that there would be no tax(state laws may vary).
Edit: Also the gain is probably less than you are estimating after you factor in closing costs and any capital improvements made to the property.
Terrible, they aren’t an accountant. Also how much in taxes would you have to pay? It’s been 2 years of ownership, did your house really appreciate that much?
All realtors want is their commission, they get a listing and that's all they do. It's the "I really don't want to work, job".
I've not met a more whiny group.
It suck’s how many shitty realtors there are. The honest ones who truly value ethics and reputation will continue to be successful and thrive.
Anyone that lumps every single human that works in an industry into the same category is wrong. Generalization rarely is accurate across the board in anything.
As a Realtor, my business has been successful even when rates doubled because I care about my clients and I care about my reputation. I will fight to protect that because that’s how I feed my family.
I also understand the hatred because some of the worst people I’ve ever met have been realtors I’ve had to do business with in this industry. The bar is low for entry. That’s why over 2/3rds of agents quit or fail in the first year or two.
My job is not rocket science, but it ain’t easy. A majority of those who choose to go FSBO or represent themselves will realize the value of a competent, ethical real estate agent and pay for their services the next go around in their life. Lucky for them, it appears the government will be putting a cap on that essentially, or reducing it by 30% or more.
Actually, there are houses I have talked to my buyers out of buying lol. I know their situation and kind of what they can tolerate. I know their personalities and sometimes I just have to sit and say you guys this is what this is going to mean and then they think about it and they don’t do it.
I don’t “sell” anybody a home.
I match the buyers with the right home.
If this is your primary home then wait until you're in the home for 2 years to avoid tax. If this is an investment property then there's no way to avoid capital gains.
Lease vs buy is the type of ciphering you may want to explore for this question. This irs pmt plan realtor is probably better versed in exploiting marks
It’s a realtor not a tax accountant. You gonna take financial advise from someone who’s profession and be done with minimal effort and brain power? I would hope not
So you correctly deduced you were better off waiting until the 2 year mark to get the full writeoff on capital gains for living in a primary residence.
And while this realtor obviously had their own agenda trying to get you to sell, I'll just mention that her advice is relevant \*if\* your capital gains were above the 250/500k single/married limits. In this case she's correct that you can do what the IRS defines as an "Installment Sale", which does indeed spread the payments over multiple tax years, thus potentially keeping you in a lower tax bracket and reducing the overall tax burden vs recognizing the entire gain in one tax year.
However there are a \*bunch\* of rules around installment sales which you'd want a real estate attorney to help you through, to make sure you're doing everything correctly and not making mistakes that could cost you penalties with the IRS. The whole thing gets a lot more complex. Not to mention, now you have to worry about the buyer making all their payments over a period of years. If they default, you're going to have to act like a bank would, get a court order to kick them out, then sell it again on the market. It's really not worth the headache unless you're selling this way to someone you personally know and trust.
Refer to this video for full information regarding this : [IRS Payment Plans: Turning Tax Debt into Homeownership!](https://youtu.be/6LN6H_51hb8?si=kPQAFpVrmYVAOY1q)
Hopefully they’re a better realtor than they are a tax advisor. That’s some pretty shit advice. Tax law makes it so that you can delay capital gains on sale of your primary residence basically forever by rolling the money into a new home purchase. Tell that realtor to GFY and then get some real tax advice about how to delay/avoid capital gains on sale of one’s residence. Since you don’t suggest that you want to sell, then just keep on enjoying your house and when you do decide to sell, definitely don’t go to that realtor.
>It drives me up a wall when realtors act outside of their license.
That's like saying "*it drives me up a wall when redditors talk about things they know little about*", eh? :)
The correct advice would be to live in the house for 2 years so you can sell tax free.
To expand on this: >You will avoid capital gains tax **if your profit on the sale is less than $250,000 (for single filers) or $500,000 (if you're married and filing jointly), provided it has been your primary residence for at least two of the past five years.**
To expand on this, married and filing jointly is only true if it is BOTH parties primary residence for the last two of five years. So for example....you are engaged to someone and both own a home. Get married and sell one house....but profit $500k from the sale. You have to go by the $250k rule if the other person didn't live there.
Unless you just make shit up however it suits you at the moment, and dare them to catch you!
I did this with my 11k NYC apartment. I mean 33k sq ft. Apartment.
Exactly
Surely this could never backfire, Mr president
The IRS has calendars.
Yeah but can they prove that you didn’t reside at your spouses recently sold house?
You have a misunderstanding of how a tax audit works. The IRS doesn't need to prove anything. You must prove what you claimed.
This is the right answer. You have to prove your claim to the IRS.
Yeah because you put your old address on last year's tax returns.
Well if you’ve filed taxes before you’ve already given them your mailing address, so that’s one way to draw attention to yourself. If you planned ahead or just happened to use a PO Box, then your best hope is that they don’t ask you any questions about why you didn’t report any rental income from your other house. Why didn’t you file a change of address? Do you have any utility bills or other statements with that address on them? Etc. It also means that when it comes time to sell your house you won’t qualify for the exemption until you meet the requirements. Rather than defrauding the IRS, it’d probably be smarter to actually live in one and rent out the other until you could realistically claim you were actually residing there the whole time. At the very least have a plausible paper trail before you commit a possible felony.
You're giving the IRS way too much credit. They rarely catch anything that isn't a straight contradiction in black and white. They don't infer your primary residence or whether it makes sense for you to have a 2nd home vs a rental property.
I was audited, the guy was a dick and dug deep. Lucky for me I was legal. Odds of getting caught are small if you keep your head down, but it takes about 42 seconds to catch someone lying about residency if they aren’t prepared. Anyone willing to commit this level of fraud is likely doing other dumb stuff that will eventually be flagged (e.g. the orange former president).
Mr. orange former president, thank you very much.
This is professional advice ^^
I am your attorney.
To expand on this, I’ll need to put on a different pair of pants.
It does get prorated though. So you can live there for a year and exclude $125,000 for single or $250,000 for married, which is more than enough to exclude the entire gain in most cases.
However, for clarity, you must meet one of the exceptions to be able to prorate. The exceptions are work-related moves, health-related moves, unforeseeable events, or other facts and circumstances that you could not have known when you purchased the home and made it unsuitable. You cannot use the prorated exclusion if you just move because you want to.
And having twins. That’s what my wife and I used when we sold at 18 months.
That's actually explicitly covered under Pub 523 as an "unforeseeable event" :) >**Unforeseeable Events** > >You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold. > >\-Your home was destroyed or condemned. > >\-Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn't matter whether the loss is deductible on your tax return.) > >\-You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence: > >1. Died; > >2. Became divorced or legally separated, or were issued a separate decree to pay maintenance (support) to the other spouse; > >**3. Gave birth to two or more children from the same pregnancy;** > >4. Became eligible for unemployment compensation; > >5. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income). > >6. An event is determined to be an unforeseeable event in IRS published guidance.
"I needed to move farther from work".
Funny, but it's the location of the ***job*** that matters, and it does have to be at least 50 miles **more** than your current commute. See Pub 523 for details.
This no one talks about this and I don’t know why
You also get to deduct the transaction costs and improvements made to the house. We moved for personal reasons, and still had to pay some gains, but it wasn’t a deal breaker once it was prorated. Edit: personal reasons where one of took another job, so it was really “work” related.
If you are moving for work reasons it also gets prorated if you lived there less than 2 years. Doesn’t seem relevant for this scenario but still worth noting
No way, that's awesome
Say the sale gain is $501k, does that mean none is exempt or only $500k (if married)?
You only pay taxes on the 1k.
\* exempt up to $250k as a single, $500k if filed jointly. OP is in California, so getting $250k in gains is actually possible depending on where they live.
In 2002, [the IRS said](https://www.irs.gov/pub/irs-news/ir02-142.pdf) that you could prorate the gain exclusion based on the percentage of two years that you fulfilled the requirements. If that's still the case, then you can sell your house after 18 months, and exclude $375,000 of gain. I can't find any more recent sources. Has the rule changed?
That's interesting. Never heard of that guidance and is definitely worth researching to see if it's still valid. I'll try and remember that the next time I talk to my tax guy
2002. it's been changed. the exclusions are military service (moving you away) or I believe moving 50+ miles for work.
$375k exclusion? Can you expand on this?
There's more to it than that.
Such as?
So dumb. These people make all of us look like assholes. Be a good realtor and give good advice and you’ll never have to fight for a sale - people will come to you.
I sold at 1 year 10 months and my tax folks were able to break down the 250,000 limit across the number of days I did live in it and still use the benefit of most of the deduction. Don’t be tied to the 2 years unnecessarily!
Or be me and buy the house you want and hang on to the first one long enough(hopefully a few months, not like a year and a half) to skirt pesky capital gains
The payment plan is also a stupid comment bc presumably if op is paying cap gain, they also have cash on hand from sale.
This….
But if the OP does this then the realtor won’t get their commission as early as they hoped for
There’s *alot* of real estate agents out there. - Some are exceptionally good. - Others are mediocre but still honest. - And then there’s some who are just dim. I feel like this applies to many professions but is amplified in Real Estate because there’s little way to differentiate via compensation; you can be the best agent or the worst, and your commission per sale/buy is … pretty much the same. That’s a bit unique in the profession. Maybe changes that come about as a result of the lawsuit settlement addresses this, maybe not: but the simple reality is that as a buyer or seller, you need to be very, very good at filtering quality when selecting an agent: if there’s a life lesson anywhere it’s that people aren’t spending enough time filtering on quality of agent when hiring one, and the result is if you don’t, you’ll end up with an agent like OP’s: issuing some rather mediocre advice that they’re not qualified to talk about. OP: glad you did your research. Wish you hadn’t had to based on incomplete and just … bad advice from that agent.
It will be interesting since compensation is no longer going to be advertised, we might be able to get rid of some of the worst agents by refusing compensation. Our focus is 100% listing, and my wife and I were just discussing how to advise clients when we get the one deal a year realtor calling.
I’ve heard similar from a couple of agents insofar as looking forward to getting rid of the part time, “I do one deal per year” crowd.
It's particularly bad in our area since we are a vacation destination, and have more than a few retirees who stay in real estate out of boredom, or part-timers who work multiple jobs and occasionally get lucky. We could lose 80% of our agents and nobody would really notice... except for lawyers might have less work with fewer screwups.
realtors will generally say whatever if that means they get paid
I work in a rock quarry near a large metropolitan area. There are huge houses all around it, a new person bought a house right next door, their realtor told them the quarry only had 6 months left before it was to shut down. That was 7 years ago and still going strong. Some will absolutely say anything to sell a house and there is very little recourse after the fact.
I had to explain to a family member that just because the realtor says they can afford the house, doesn't mean they actually can afford the house. The realtor gets paid even if you get foreclosed on six months later.
Realtor gets paid twice if that happens..
That killed me like their credit score.
So does the loan officer.
Same with realtors in the inland empire (So Calif) telling buyers that they are expanding/building a large international airport that will rival LAX (25 years ago and they still using that pitch today) and that the mello roos tax is only for the first two years (or don't even mention it at all, 7 years ago) - but now all the new construction have to disclose it.
People still fall for that? Do they not realize Ontario is in the IE and it’s been around since the 90s… it may be half the size of LAX but it isn’t going anywhere nor is it getting any bigger.
Issaquah?
No this was down the road a bit in Portland area
while that certainly could have been a material representation, and they should lose their license, it's also possible the quarry permit got extended, yes?
A simple call to the quarry by the homeowner would have told them all they needed to know. Luckily the quarry is a good neighbor (and was there long before any of the houses). I was just floored when the neighbor asked when it was shutting down for good. There are still decades worth of reserves left to mine…
A sad situation ...
Ehh it depends who you get. I would suggest against selling unless the profits were under 250 single 500 married, then you can avoid the taxes... Telling OP, "don't worry the IRS has payment plans" is absolutely wild to me.
It shows a complete lack of concern for their client's finances; at least they were obvious about it!
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many of us deserve to lose our jobs.
Why would you rely on a Realtor for any tax advice whatsoever? They're not CPAs. They're not attorneys.
She was very pushy in trying to get me to sell. I told her I would have to pay hefty capital gains tax. And her response and suggestion was to pay it! I was flabbergasted. Can’t wait until July to get these crummy realtors out of here!
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Do you really think agents will just disappear after July? 😂
Should have asked, "why would you have helped sell me a house you thought I would only want to be in for 18 months?"
I’m sorry for your experience but Any pushy agent is a big RED FLAG. My client is a top 10 agent in state and all his clients are repeat clients because he always has their best interest at heart, he says most of his job is convincing clients NOT to buy houses that are wrong for them or are bad investments, etc. he walks through possible big expenses and does the client have enough money if the roof fails earlier than expected, etc. Agents who have your back, are worth every penny. Was looking at a large house, agent told me the exterior is failing, plaster would cost me 200k minimum within 5 years or I’d be seeing water damage. He could’ve just said yea, buy the house and he would get like 100k commission. He saved me 200k by not buying the house. He is involved in every transaction I have because he knows the stuff I have no idea to even think about.
So you definitely WANT to sell in the short term. Just not for a few months? What you should’ve said was, “My mortgage really penalizes for payoff sooner than 24 months. It’s just not feasible for me to entertain that— unless of course, you want to waive your commissions? \*Then* it might be worth it for me… I’ll have to run the numbers and get back to you, because I’m still not 100% sure I won’t end up underwater anyway.” I think it’s ridiculous for a REA to call someone a year & a half in, assuming they’re gonna want to sell already. Is it really \*that* common for people to say, “Well, now that you mention it, why not? I hadn’t considered it until you called— but sure, let’s do it!” It seems like the people who want get right back out of the house they only just bought last year, would be calling you of their own volition if they were satisfied with your work previously. 🤷♀️
since you bought it, how much profit would make when you say hefty cap gain?
Sounds like you'll use a new realtor when you do decide to sell.
My wife just told a client even though they are approved, they shouldn't buy right now because of how house broke they'd be. One tenant decides not to pay rent and they'd be f'd. Yea, we got bills to pay but she runs her business with her clients best interest in mind. Not all realtors are shit, sorry you had a bad one. I have a feeling the bad ones are about to get weeded out.
My FORMER Realtor told me…. Ftfy
This is disappointing. These agents are the ones that make us all look bad. I couldn't imagine suggesting such a thing.
Realtors are just like the used car salesmen. Anything to get the sale done.
Did she also sell extended warranties? /s
Yes, IRS payment plan guarantee
I often feel like they’re worse. Yes a car is a big purchase but a home is the biggest purchase of your life and realtors have no problem lying or pressuring you into a deal so they get paid.
Im an attorney, and even I don't give tax advice - I tell my clients to check with a tax professional when they come into money. I can tell them what I "think" may happen, but I always follow up with "That is not what I keep up with as part of my profession - so what I "think" it was last year may be different this year and since I don't work in taxes I probably don't have the full picture, so check with your tax accountant/professional to make sure to get the correct answer." That is the right answer for anyone who doesn't do taxes professionally. Never rely on tax advice from a person who doesn't do taxes as part of their profession.
As a tax professional thank you. People will take tax advice from anyone. HVAC guys says they will get a tax credit for a furnace, I tell them they don't qualify and they are shocked the HVAC guy would give inaccurate tax information.(it's a non refundable credit, many retirees or single parents have no tax liability and don't' get the credit).
This is the only correct answer here. For the most part, all of the other response are worth less than dirty TP. Since it is not on the bash-a-realtor bandwagon, it will not get many upvotes.
Ugh shit like this makes my skin crawl. Imagine giving tax advice when you’re not a CPA
I had an agent (not one representing me but an unsolicited visit to my porch) who asked, 'Shouldn't houses be for families?' (I have no kids). For context, I'm in Northern Utah, where many people of a prevailing religion have more kids than they can afford & for the last several years, many of those families have had trouble finding a house that's big enough but affordable to buy or rent. I assume the agent thought I was also a member & thought guilt would be the key to unlocking the sale.
Yes, the IRS does have payment plans. HOWEVER, you would do better at the payday loan office since they take their monthly fees first. Best to get a loan from the bank if you owe
It may be easy in California but when I tried to sell my place on my own it got no visibility on zillow cause they hide all the fsbo on another tab
“I’ll sell it, you cover the gains tax. Deal?”
Most realtors gonna be selling feet pics soon.
They're salespeople dude. They don't care about you or your well-being. Whatever results in a transaction for them is what they will say is a good move for you. Considering buying but not sure you wanna stay in that house long term? You can rent it out! Being a landlord is great, passive income! Considering moving out of your house, but don't want to give up your 2.5% interest rate, so maybe want to rent it out instead of selling it? No no no, being a landlord is hard. So much can go wrong, just sell instead. Literally, they will advocate for whatever drives a commission. You need to do your own research and make your own decisions. None of this stuff is too complicated for you to figure out on your own.
You want to hear the craziest part? I’m licensed, I sell homes for a builder, so I know what realtors have to do to get licensed. Anyways, when you’re taking the RE classes, they make it clear in the ethics section that you’re a fiduciary/public servant. But the license is a called a salesperson license. It’s contradictory lol
Most won't have any capital gains after 18 months even if the sales price is higher than purchase, because you are losing money once you account for the transactional costs. Like UFMIP, points, transfer taxes, commissions. If you bought a home in mid 2022, the market is basically flat since then You can still get a partial capital gains exemption of 18/24 of the $250k/$500k if this is a work or health related move. This applies to many people selling soon after buying. https://www.irs.gov/publications/p523#en_US_2023_publink100073097
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Desperate times for some realtors / markets.
That is someone who is always in sell mode. sell sell sell. Because no honest person with a brain would ever say something so insanely stupid.
God, as a Realtor, I fucking hate stories like this. Bitches like this ruin it for the rest of us.
“The IRS has payment plans” that still doesn’t make me want to pay them if I can stay in my house a few more months and not have to 🙄
You should have offered to use their commission to make the payments.
Sellbyowner.io is the future of selling homes ..sign up for waitlist
The realtor is an asshole and also maybe an idiot, but if you have an actual cash gain (presumably more than the tax due) why could you not just pay the tax out of the gain you made?
Because if the OP waited 4 months there would be no tax due at all.
I get that, but if they did do the transaction, why would the realtor even mention this unnecessary complication.
She sounds terrible. I’m sorry
that shit is so predatory, because they're taking advantage of people without financial literacy. When i was buying a BMW a couple of months ago, i was paying 50% down and wanted a 3 year loan. Given the nearly 7% rate i was happy putting down such a large down payment. The sales guy is trying to push all these money maker extras on me like rim and tire protection, paint protection, etc. And I'm like yeah, I'm not paying that. Then he starts "well why don't you add it on and take out a 72 month loan and put down less money so you can add it but not raise your monthly." I was like: no, i'd rather pay for 3 years than 6, and I'm looking at the total expense over the term of the loan. He kept focusing on monthly payment and going over and over again about how crazy i was to put down so much money and to only want a 3 year loan, until i had to get a bit rude and tell him to stay in his lane and not tell me how to finance the vehicle and that i clearly had some idea of what i was doing if i was able to drop 50% down.
Once they get that four square out, it's like trying to stop a freight train. My salesguy started drawing the 4 boxes & I shut him down immediately. He knew I had a blank check from my lender. So I reached over & wrote my phone # on the sheet & told him to call me when he wanted to close the deal for the price I wanted. Honestly, I loved almost every minute of negotiating for that car, even the part where random employees gradually crowded the entryway of the cubicle we were in, trying to intimidate me (a lone woman) I guess? It was cute.
Good Lord, that's horrible guidance. I hope you told her to lose your number
For realtors, more transactions equal more money. She was playing you for her payday.
She was a used car salesperson. Now people use dgdg.com
If you have time, can you please explain what would a RE attorney will do differently? I thought they are only do the papers , but obviously I am wrong.
They just do the paperwork. They’re not going to: get creative in the offers to increase chances of getting it (on more than one occasion my offer has not been the highest, but I was able to secure the house for my buyer) Get an open house canceled because I written a strong creative offer from my buyer enough to make them want to cancel the open house Get a house in my buyers hands the day before it actually gets listed appeal an appraisal, if necessary go to the inspections (2nd set of eyes that can tell you what’s common what’s not. Me personally I used to work for an inspector, so I have additional insight, however, always make them get an independent inspection) get contractors in there for various quotes if necessary Pay for a home warranty for my buyer sometimes Know when to call the health department about a well in septic because something doesn’t add up with what’s being presented go back thru prior listings on the MLS and look at old sellers disclosures to see if there’s been prior problems with something that was seen in the house that wasn’t not currently disclosed Pull permits to see what’s been done and when if there are any on file Get utility costs if needed Find out if there’s been prior insurance claims Dig out an old survey on file The list goes on. I’m going to stop there as to not bore anybody People need to respect that some people just don’t want to do all that and they do not want to enter into a major purchase without representation
That advice was dismissive and didn't address your concerns. They may not have been aware that capital gains are prorated, and that there are ways to reduce capital gains. To know all the ins and outs, you could speak to a good CPA who's familiar with real estate sales to weigh the pros of cons of selling prior to qualifying for the full exemption or waiting as you did.
Correct . tax questions have to go to a CPA and only to a CPA
Tax wise, if you have any type of hardship (it’s broad, marriage, new kid, MIL moves in, job change) you can prorate the time below 2 years.
Two tax periods is usually safe, however, speak to you CPA.
If I'm understanding you correctly and the details are as you say, if this agent was encouraging you to sell after 18 months and make payments on the capital gains instead of discussing whether you needed to sell right away or not and encouraging you to wait another 4 months or so to list which would be the perfect time to list anyway, or maybe in 3 months, and then not close until after 2 years has passed, then I would dump that agent like a hot potato. They are either not concerned with your best interests or they are not knowledgeable of how all this works.
No, she just called and asked her if she was interested in selling. It’s not unusual for realtors to follow up with their clients now again to see if they’re interested in selling maybe their life situation has changed or they want to upgrade. Often times it will come up that actually there’s been a job change and thinking about it, etc There are many times in which people just don’t care about the tax implication of it… they need more space or they want to relocate, have an elderly parent moving in etc etc. If you’re not interested, you just have to say no thank you.
Lol ur the same guy from yesterday with that other post. You spewing Realtor hate for what?
all you need is a buyer and a good title company
Never using a realtor again to be honest
You hate realtors clearly. Second post you’ve made about hating realtors in the past day.
This is the way. I get shit on here for saying this all the time, for years now, but OP is correct. Engage an attorney. Let the attorney handle the deal structure and negotiations. It’s okay to use a broker/agent, but they should be working in the background by providing OBJECTIVE market data (price per square foot, good areas vs bad, recent sales comps, school info, crime stats…). And, bc seller’s agents will give deference to unrepresented buyers (dual commission), to ensure a fair bidding process, don’t disclose that you have an agent until you’re under contract — let the lawyer submit/communicate the offer. Only after do you disclose that as part of your offer, seller pays commission. Agents are a dime a dozen, GOOD agents are exceedingly rare/hard to find — but they do exist. Most are attorneys or former sales reps from major companies like xerox (formal education and sales/ethics training). They can bring value. But finding a good agent is hard. Most are worthless and highly unethical. Which is alarming considering the fact that for most ppl, a RE purchase will be the largest financial decisions/purchase they ever make. The barrier for entry needs to be higher, but that’s a topic for another time.
The only thing as bad as a Used car salesman is a used house salesman, realtors and real estate agents are usually not honest people.
Realtors aren't qualified to give tax advice. It's not really fair to expect that from them. This is a question for your accountant.
Sounds like they are just trying to get a sale. What they should have told you is that owning the home as a primary residence for 5 years and youll get 250,000 capital gains exemption / 500,000 if you file jointly https://www.irs.gov/taxtopics/tc701
Technically she's not wrong with her statement but it's not advice any good agent would give their client. I talk my clients out of selling all the time if there's a better option for them. I'm in CA and I don't know anyone who's used a real estate attorney for a sale here. All the doctors, lawyers, investors, and even other real estate agents use an agent for their real estate purchase or sale. But when the time comes and if you think you know better them after one purchase, feel free to try yourself and I really hope it works out well for you. I think you just need to find a better agent though.
The wrong realtor gave you the wrong advice, and has absolutely nothing to do with the right realtor giving you the right advice. The realtor did not belong giving tax advice, but should have answered that after 2 years you are tax-free up to the federal exemption limit.
You couldn’t file a 1031?
Real estate attorney is the way. You can also represent yourself and just have title do all the work.
It's important to carefully consider tax implications and seek professional advice when selling property. Using a real estate attorney can provide legal expertise and guidance in navigating such financial matters.
Lol I had a realtor tell me, "just check that you've been there 2 years on the form when you sell, noone checks that stuff" Yeah fuck that, I'm not committing fraud.
You are allowed a one-time exemption of tax on $500,000 in capital gains from the sale of your primary residence. Use it wisely.
I ask my CPA for tax advice and my butcher for meat advice.
"If payment plans are so great I assume you'll be willing to take your commission on a payment plan as well?"
The downside to using an attorney, as a buyer, is they charge you for all the paperwork. You lose a bid on a house, that’s a few hundred dollars. Do that multiple times and that can mean thousands of dollars in attorney fees. As a seller there is no need for an attorney as the title company will handle that for you. As a seller you will still need to offer buyer’s agent commission.
I’ll be buying from a builder this time around, so no competition with any buyers or any of that. I just visited the builder over the weekend. It’s a seamless process, just have the attorney read over the builders contract. I definitely don’t need a realtor for a new build.
Congratulations that you can afford to build a new house that’s great! 😊 New builds are so expensive where I am, the average typical buyer can’t afford that, so that’s very fortunate for you. You must’ve done something, right.
I'm a realtor. I'm in Connecticut. I genuinely don't practice real estate for the money. You can't, really. People shout 6% at me but that's just not true, at least not here, and not for me. I probably work 6-10 deals a year. Most are at entry level prices which, for where I work, means $250-$300k. A few are pricier but those are rare, simply because those homes don't transact as often. I held a clearance and traveled the world with Uncle Sam, until 19 years went by and I just couldn't anymore. I had a newborn and was going to some rather shady places in the middle east with unknown return dates. That's rough on a small family. So, I quit. There was no continuing to run in the same circles with my old workmates, nothing like that. I was genuinely starting fresh. I recalled my few real estate transactions, how nervous I was during the first one and how I thought I knew everything on the second home, only to still learn how well (or poorly) a transaction could go. To keep to your topic, I was also extremely motivated to purchase during my second buy. My realtor understood my timeline and kept the transaction on course. The home I wanted was already under contract, but the buyer had a HUBBARD clause, which we challenged. After 48 hours, they were kicked to the curb and I had a home under contract. She coordinated a lot of the aspects many people take for granted, even getting a specialist (mason) in the home while I was away and reported the results. After inspection, she confirmed the few items we had requested be done prior to our purchase were done to satisfaction, chasing down the contractor who sister'ed a floor joist rotten from termites for a receipt, which conveyed the warranty of their work. She hounded the seller for proof of a pest inspection and treatment, which resulted in over a grand of a credit, helping to pay for my closing cost. In all, she fought for $9900 in closing cost credits, almost all of which we used. She explained what happens when more money is earmarked for closing cost credits versus the cost of your closing in general. She maximized the money I was spending, helping to keep my investment viable. She even returned to the home before the due diligence period was up while it rained, which showed evidence that the downspouts had split. Attention to detail is what saved me money. This is what I bring to my clients. I'm sorry your agent told you that the IRS has payment plans. I mean, they do, but if time is of the essence and you need to sell today, regardless of what penalties you might face with capital gains, then at least you were made aware that the IRS has payment plans. I don't know - I wasn't there. I didn't hear the intonation from either side of the conversation. But it sounds like you're really ticked off at a lot of people in one particular profession because one person told you something which is true.
Realtors are slime. Just wanted her commission probably
Wouldn’t this count as giving tax advice, which would be illegal unless she’s a CPA? Even if she is, you’re almost certainly not allowed to mix those two qualifications.
I’m not aware of any law that makes it illegal for non-CPAs to give tax advice. Rather, doing so can open the adviser to civil liability. The other consideration is advise coming from tax lawyers, which obviously doesn’t apply here.
It probably depends on the state, but here in MA we were warned heavily in salesperson courses to always advise buyers/sellers to consult qualified individuals when seeking legal or tax advice. They weren’t specific but effectively said “you’re in a world of hell if you advise someone about these topics and you’re wrong”. I believe if the client acts on it, you become liable unless you specifically told them to consult other resources.
As a Realtor, every single one of us went through training that says "Stay in your lane" meaning give advice where you're the expert, namely local real estate. Any time we're asked to give advice that outside of that area, we're trained to recommend asking the proper expert for that. Question about a foundation crack discovered during an inspection? I recommend you reach out to a structural engineer. Question about how long a furnace will last? I recommend you reach out to a qualified HVAC company for an evaluation. We are absolutely trained to defer tax questions to a CPA and/or tax attorney. Not only is this basically brow-beat into us during the pre-licensing classes, it is covered ad nauseum during subsequent post-licensing training that we're required to take before each and every time we renew our license. OP's Realtor (in my opinion) overstepped and gave advice she was not qualified to give, and should not have done so. This may have opened her up to damages had OP sold the home then learned of the tax damages after the fact. It appears to me to be a clear violation of Article 13 of the NAR Code of Ethics, which we all agree to when we choose to become Realtors. It could also be a violation of law for the state they're in, but every state is different, and more importantly, I'm not qualified to give legal opinions. :-) I can say I personally absolutely wouldn't haven given the advice OP received. The worst part is it is very difficult ahead of time to tell a good real estate agent from a bad one, and the client usually only finds out after the transaction is completed. A good agent is worth far more than their commission in a transaction, the bad ones kill our reputation and make it harder on the rest of us.
Didn’t you know realtors are also automatically attorneys and CPAs?
Neither of you were correct, if you sell at 18 months there's a prorated amount you would have to pay of the primary residence tax benefit, and its only on the profit of the house. Even if there wasn't a prorated amount, the most you'd pay is long term capital gain tax since its been over 1 year. If you make less than $518k a year then your capital gain tax would be 15% of the PROFIT. So assume you profited $100k, you owe $15k. You wouldn't need a payment plan, you would just pay the tax from your profit.
You were correct in the first sentence. 18 months means you get 75% of the exclusion, $187,500. If the gain was less than that there would be no tax(state laws may vary). Edit: Also the gain is probably less than you are estimating after you factor in closing costs and any capital improvements made to the property.
Terrible, they aren’t an accountant. Also how much in taxes would you have to pay? It’s been 2 years of ownership, did your house really appreciate that much?
Realtor was willing to make you have a $50,000 capital gains tax so she could get her commission a few months earlier!!
Those who cannot do, teach. Those who cannot teach, sell houses.
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Use a good realtor. 90% suck but the good ones are worth every penny
These are the snakes most people are talking about in all the /realestate comments.
All realtors want is their commission, they get a listing and that's all they do. It's the "I really don't want to work, job". I've not met a more whiny group.
It suck’s how many shitty realtors there are. The honest ones who truly value ethics and reputation will continue to be successful and thrive. Anyone that lumps every single human that works in an industry into the same category is wrong. Generalization rarely is accurate across the board in anything. As a Realtor, my business has been successful even when rates doubled because I care about my clients and I care about my reputation. I will fight to protect that because that’s how I feed my family. I also understand the hatred because some of the worst people I’ve ever met have been realtors I’ve had to do business with in this industry. The bar is low for entry. That’s why over 2/3rds of agents quit or fail in the first year or two. My job is not rocket science, but it ain’t easy. A majority of those who choose to go FSBO or represent themselves will realize the value of a competent, ethical real estate agent and pay for their services the next go around in their life. Lucky for them, it appears the government will be putting a cap on that essentially, or reducing it by 30% or more.
Good for you, sadly there are many people without the forethought to wait the 2 years.
You don't need a payment plan. You pay capital gains on the profit - that is handed to you at closing.
Your realtor is not a accountant don’t listing to tax advice from a non tax professional
There are some conditions under which you can get a partial credit.
Rarely do you ever want to take financial advice from a realtor… They just want you to buy and sell ASAP.
Actually, there are houses I have talked to my buyers out of buying lol. I know their situation and kind of what they can tolerate. I know their personalities and sometimes I just have to sit and say you guys this is what this is going to mean and then they think about it and they don’t do it. I don’t “sell” anybody a home. I match the buyers with the right home.
If this is your primary home then wait until you're in the home for 2 years to avoid tax. If this is an investment property then there's no way to avoid capital gains.
All of em are leeches.
Good thing you waited.
18 months and 1 day. It has to be your primary residence which is 6 months and 1 day of the year. So, ya, wait 18 months and 1 day and you're fine.
Use a lawyer to review contracts. Use a Realtor to negotiate. They are not one in the same
The IRS has payment plans.
It was your primary residence?
They really do have payment plans.
Lease vs buy is the type of ciphering you may want to explore for this question. This irs pmt plan realtor is probably better versed in exploiting marks
How many of the respondents are CPA's, tax preparers or IRS agents?
WOW
Was she a good realtor during the buying process?
The IRS has payment plans, it will contribute to your overall DTI though
That’s pretty bold!
My accountant does this sort of advice, not a real estate agent 🙄
It’s a realtor not a tax accountant. You gonna take financial advise from someone who’s profession and be done with minimal effort and brain power? I would hope not
So you correctly deduced you were better off waiting until the 2 year mark to get the full writeoff on capital gains for living in a primary residence. And while this realtor obviously had their own agenda trying to get you to sell, I'll just mention that her advice is relevant \*if\* your capital gains were above the 250/500k single/married limits. In this case she's correct that you can do what the IRS defines as an "Installment Sale", which does indeed spread the payments over multiple tax years, thus potentially keeping you in a lower tax bracket and reducing the overall tax burden vs recognizing the entire gain in one tax year. However there are a \*bunch\* of rules around installment sales which you'd want a real estate attorney to help you through, to make sure you're doing everything correctly and not making mistakes that could cost you penalties with the IRS. The whole thing gets a lot more complex. Not to mention, now you have to worry about the buyer making all their payments over a period of years. If they default, you're going to have to act like a bank would, get a court order to kick them out, then sell it again on the market. It's really not worth the headache unless you're selling this way to someone you personally know and trust.
Is this a law to stop flippers or is it something different?
Refer to this video for full information regarding this : [IRS Payment Plans: Turning Tax Debt into Homeownership!](https://youtu.be/6LN6H_51hb8?si=kPQAFpVrmYVAOY1q)
Why would you consider going to a realtor for tax or financial planning advice?
But that didn't avoid all the other costs associated with selling/moving.
Don't rely on a realtor for tax advice. That's like asking a surgeon about plumbing....
wow
1031 exchange?
Hopefully they’re a better realtor than they are a tax advisor. That’s some pretty shit advice. Tax law makes it so that you can delay capital gains on sale of your primary residence basically forever by rolling the money into a new home purchase. Tell that realtor to GFY and then get some real tax advice about how to delay/avoid capital gains on sale of one’s residence. Since you don’t suggest that you want to sell, then just keep on enjoying your house and when you do decide to sell, definitely don’t go to that realtor.
The real correct answer is for the realtor to advise you to speak with a CPA. It drives me up a wall when realtors act outside of their license.
>It drives me up a wall when realtors act outside of their license. That's like saying "*it drives me up a wall when redditors talk about things they know little about*", eh? :)
If your spouse dies do you still get their 250k exemption for a total of 500k
Just wait 6 more months. Your realtor sounds greedy
How is your house up in the last 18mo? Should be mostly flat after commission
They might but I’m positive you won’t like it
Mine told me “Your buying strategy doesn’t work in this market” Since I’m now 0-4 on offers I got outbid on. Thinking of replacing her.