One of the first things you will hear when it comes to buying a home is that you need to plan for it financially — and that is true. However, far fewer people realize that it also takes a little financial planning to successfully sell a home. Without a good plan in place, you could walk away with less profit than expected, more expenses than expected or just ill-equipped to use your home profits in a manner that builds your wealth. Let’s talk for a moment about some ways to get your finances in order for a resell of your home.
Evaluate Your Equity
The equity in your home is essentially how much your home is currently worth versus how much you still owe on the mortgage. As you live in your home, your equity increases both as you pay off the principal on your mortgage and as your home naturally appreciates in value over time — which basically translates to free money for you! Before deciding to sell, make sure you have enough equity in the home to pay off your mortgage and cover sales costs, while still having a generous amount left over. That equity can be rolled over into a new home or invested in other ways to help build your wealth. If you do not even have enough equity to cover a down payment on your next home — you might want to wait a bit before reselling.
Build a Financial Pad in the Bank
Remember, it is not just going to cost you some money to sell your home (in the form of closing costs, agent commissions and other fees) — it is going to cost money to move, as well. Make sure you have a fair amount of money tucked away in savings to cover your moving costs, unexpected repairs and other incidentals so these costs do not leave you scrambling.
Watch Out for Capital Gains Taxes
The income you receive from the sale of your home may be subject to capital gains taxes. Many homeowners can claim an exemption from this tax provided they have lived in owned the home for at least two years, lived in it for two of the last five and have not made more than $250,000 in profit ($500,000 for a married couple). However, if you have lived in the home for less than two years, you may not be able to claim this exemption. To avoid getting hit with this tax, consider staying in the home a little longer to get within the exemption window. If this is an investment property that you did not live in, do some research to see if you qualify for a Section 1031 exchange, a provision that allows you to defer your capital gains taxes by rolling the equity over into another investment property.
Taking some time to be financially prepared for a resell will greatly reduce your stress levels and make “surprises” less traumatic when you go to sell your property. When you are ready, give Atlanta Fine Homes Sotheby’s International Realty a call at 404.948.4812.