luxury napa home for sale

5 Ways the Wealthy Save Money on Real Estate Deals

I just read this article in the Huffington Post Luxury Real Estate section, which lists 5 ways the wealthy save money on real estate deals. I thought my clients would be interested in learning more, so here we go:

1. Closing Adjustments: If you are the seller, get repaid at the closing for all prepaid service contracts and supplies that are transferred to the purchasers. All sellers have to do is identify each contract they have prepaid, then create a per diem cost allocation for each particular contract and multiply that cost by the days remaining on the contract on the closing date.

2. IRC §121: That dreaded money-sucking monster, “capital gains tax,” is generally payable by a seller at the highest percentage of 23.8% , and that’s just the federal tax rate. There’s also state capital gains tax which varies from state to state. And then of course the 3.8% Obamacare capital gains tax, depending on your income, which most people are not aware of. However, homeowners who time their closing properly can avoid paying capital gains tax on the first 500,000 of gain realized at the sale from their original purchase price. Pursuant to the Internal Revenue Code’s section 121, a married couple qualifies for this exemption if at least one of the two married spouses owned the home and they both used such home as their “principal residence for 2 years or more, as long as its over a 5 year period preceding the sale date.  The capital gains savings for individuals is $250,000.

3. IRC §1031: Capital gains tax is not subject to an exemption if the home was owned for other than a principal residence pursuant to section 121 of the Internal Revenue Code. However, section 1031 provides a means to defer the capital gains tax due for an indefinite period of time into the future, compounding your real estate purchasing power by including that unpaid tax into the available purchasing monies for the next transactions.

4. Step-Up-In-Basis: If real estate is sold immediately after the owner dies, no capital gains tax is due thanks to step-up-in-basis. The person’s beneficiaries are distributed such property at the date of death valuation for that real estate pursuant to the Internal Revenue Code’s section 1014. Consequently, if the beneficiary immediately sells the property, no capital gain is realized and no capital gains tax is due because the real estate’s purchase price and its sales price will be deemed the same for tax purposes.

5. Mortgage Interest and Real Estate Tax Deductions: Regarding the money you make, be sure to properly limit the amount that is taxable. Deductions from taxable gross income can create legal fiction. One of the best means of creating this legal fiction is through deductions from income for the mortgage interest you pay. Applicable to both first and second homes, deductions are itemized on Form 1040, U.S. Individual Income Tax Return, Schedule A.  My clients already know these 5 ways the wealthy save money on real estate deals but it never hurts to share good intel.  If you are looking for a new estate in Napa Valley, such as the magnificent approximately 24-acre Calistoga hills property shown in the accompanying photo, all you need to do is contact me at 707-738-4820 or email me [email protected].

As a top producing Realtor® in Napa Valley, I have access to some extraordinary wineries, vineyards, estates and homes in Napa, Yountville, Saint Helena and Calistoga that are not on the open market. The inventory is extraordinary right now and each and every property has spectacular views!

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