Do you know that if you sell your home and make a profit, the gain may not be taxable? Anna
and Jenny have recently learned about this from their tax professional so now they are
deliberating over the idea of selling their 15-year-old home. The fact that the profit you make
from selling your old home is not taxable is just one key tax rule that you should know.

Here are ten facts to keep in mind if you sell your home this year:

1. If you have a capital gain on the sale of your home, you may be able to exclude your gain
from tax. This rule may apply if you owned and used it as your main home for at least two
(2) out of the five (5) years before the date of sale. And if you moved out and started renting
your residence, you may have complicated rules to follow when you sell. Be sure to seek
professional advice, these special rules can be complex.

2. There are exceptions to the ownership and use rules. Some exceptions apply to persons with
a disability. Some apply to certain members of the military and certain government and
Peace Corps workers. For details see Publication 523, Selling Your Home.

3. The most gain you can exclude is $250,000. This limit is $500,000 for joint returns. The Net
Investment Income Tax will not apply to the excluded gain.

4. If the gain is not taxable, you still need to report the sale to the IRS on your tax return, even
if there is no tax owed on the sale.

5. You must also report the sale on your tax return if you can’t exclude all or part of the gain.
And you must report the sale if you choose not to claim the exclusion. That’s also true if you
get Form 1099-S, Proceeds from Real Estate Transactions. If you report the sale, you should
review the Questions and Answers on the Net Investment Income Tax on IRS.gov.

6. Generally, you can exclude the gain from the sale of your main home only once every two
years.

7. If you own more than one home, you may only exclude the gain on the sale of your main
home. Your main home usually is the home that you live in most of the time. You can only
have one principal residence at a time.

8. If you claimed the first-time homebuyer credit when you bought the home, special rules
apply to the sale. For more on those rules see Publication 523.

9. If you sell your main home (residence) at a loss, you can’t deduct it.

10. After you sell your home and move, be sure to give your new address to your tax preparer
and the IRS. You can send the IRS a completed Form 8822, Change of Address, to do this.

Reverse Mortgages

Reverse Mortgages are becoming more popular with the aging population. A reverse mortgage is
a way for senior citizens to take advantage of the equity in their home and still live somewhat
comfortably. It’s the opposite of a traditional mortgage.

With a traditional mortgage, you borrow money to buy a home and then pay off the debt. With a
reverse mortgage, you receive loan proceeds as a lump-sum payout, an annuity, a line of credit,
or a combination of the three. But you make no mortgage payments if you live on the property,
but you are still responsible for annual property taxes and homeowner’s insurance. The loan with
any added interest comes due when you move out or pass away.

To qualify for reverse mortgages, you must be at least 62 years old and own the home outright
(or have a balance that can be paid off with the loan proceeds). How much you can borrow
depends on your age, the home’s market value, and interest rates.

As always, there is a downside to reverse mortgages. Closing costs can be very steep, as much as
5% of the home’s value. In addition, borrowers may have to buy mortgage insurance and they
are still on the hook for property taxes and homeowner’s insurance each year.

Federal Truth in Lending Laws requires lenders to supply information about interest rates,
payment terms, and other costs in writing to anyone who agrees to or enquires about a reverse
mortgage.

The Federal government also requires interested homeowners to take a class conducted by
Housing and Urban Development (HUD) to learn all the rules of reverse mortgages. Your
mortgage lender can give you more information on the class. The class is free and can be taken
online as well. You receive a Certificate of Completion that goes to the lender to prove you have
attended the class.

If you are interested, shop for a reverse mortgage just as you would for any other loan. Make
sure the basic terms of competing loans are comparable, and then go with the lowest price by
comparing interest rates, upfront fees, and other charges.

Where many seniors get in trouble with reverse mortgages, is that they forget that they are
individually responsible for annual homeowner’s insurance and real estate taxes! When the
mortgage company is paying it with your mortgage payments, there is nothing to worry if they
are paid, but when you take a reverse mortgage, YOU must pay your insurance and taxes
separately. The mortgage company will not do it for you!

Mortgage interest is only deductible if you are paying it with reverse mortgage. Unless you pay
the interest, there is no deduction for interest accumulated.

Here are some bullets to remember:

• Usually selling personal residence is tax free.
• Exemption amount varies with marital status, work conditions and medical status.
• Military and Government workers have preferential rules for gain exemption.
• Gain may be exempted up to $500,000 for married and $250,000 for single taxpayers, as
  often as every two years.
• Reverse mortgages are a way to live on a home’s equity.
• Must be at least 62 years old and own the home to qualify.
• You must take a one-day class before getting a reverse mortgage.
• No payments are made until you move out or pass away.
• Costs can be steep (upfront fees 5%, mortgage insurance premiums, interest rates) and you
  are still responsible for property taxes and insurance.
• Shop reverse mortgages like other loans.
• Remember that the homeowner handles paying the insurance and property taxes themselves
  (The mortgage company does not pay it, for you.)
• Mortgage interest isn’t deductible unless you are paying it. Accumulating interest is not
  deductible.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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