Real estate contracts have a lot of clauses related to timing in them. From the time allowed for accepting the contract to the close of escrow, time limited deadlines for performance are a constant.
It is important to understand that most are absolute, if you miss you have breached the contract, or your right to take action on that particular component of the transaction. Some have a “fudge factor,” but you can’t always rely on that.
The times contained within your contract are easily seen and planned for, but outside of that there are other timing factors that you must be aware of.
If you are selling your primary residence you can take up to $250,000 as a single person, $500,000 as a married couple, if you have owned and lived in it for two of the last five years. This timing is absolute, no grace, so don’t push it. If you are a couple of months short of the two years when you list it then be sure to not close until you have owned it for two years.
Likewise, if you move out and decide to sell after a few years, be sure you haven’t been out of it for more than three years if you occupied the prior two, or you will be paying tax on the profit.
Tax deferred exchanged in accordance with Section 1031 of the Internal Revenue Code are very specific in most areas when it comes to timing, but there are some vagaries. The specific areas include the time after closing of your relinquished property to name potential replacement properties, 45 days; the time for closing your replacement property after the closing of your relinquished property 180 days.
What isn’t specific is the time you must hold the property for it to qualify. Tax professionals will recommend what they call a “safe harbor” of two years, but it only says property held for investment in the Code. That can also be over one year these days, maybe. There are also case studies of longer holding periods negated by the service so you really have to hold as long as it makes economic sense as an investor and then abide by the acceptable 1031 Exchange protocols as they are practiced today.
If you have an improved investment property your tax preparer is likely taking depreciation on the property as a tax benefit to you. The longer the time of your hold on the depreciable asset the more depreciation you will have to recapture on the resale. That may be a tipping point to having you decide to complete a 1031 Exchange for maximum legal tax protection and portfolio sustainability. Consult with your tax adviser.
Various components of the house have an assortment of warranties. Your roof, well pump, siding, carpet, and more all have their own warranty. Some are transferrable to a new buyer, but it isn’t automatic so check it out if you can. Understand that concrete won’t be warranted for it isn’t a matter of if your concrete will crack, but when. There just isn’t a way to assure you that it won’t.
Make sure you understand what is involved to satisfy each timed performance action in your contract before you submit it. Can you reasonably make all the deadlines? Don’t count on an extension in this market, the seller may receive a higher offer after they accepted yours and be looking for a way out of your agreement with them. Understand the tax ramifications of your transaction as it is affected by the timing of your ownership and closing date. The IRS is giving some flexibility due to COVID but that won’t last forever so don’t rely on it unless you absolutely must from a financial point of view.
The abbreviated quote from Chaucer, “Time waits for no man!” is especially true in real estate. Don’t assume something will be there or you have forever to get things done. These are different times and there is competition. Stay focused, be compliant with the contract, and get things done in a timely manner.
If you are diligent along the way and later have a problem you are more likely to get good cooperation from your counterparts in the transaction than if you don’t respect the time of everyone involved.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com
-->Real estate contracts have a lot of clauses related to timing in them. From the time allowed for accepting the contract to the close of escrow, time limited deadlines for performance are a constant.
It is important to understand that most are absolute, if you miss you have breached the contract, or your right to take action on that particular component of the transaction. Some have a “fudge factor,” but you can’t always rely on that.
The times contained within your contract are easily seen and planned for, but outside of that there are other timing factors that you must be aware of.
If you are selling your primary residence you can take up to $250,000 as a single person, $500,000 as a married couple, if you have owned and lived in it for two of the last five years. This timing is absolute, no grace, so don’t push it. If you are a couple of months short of the two years when you list it then be sure to not close until you have owned it for two years.
Likewise, if you move out and decide to sell after a few years, be sure you haven’t been out of it for more than three years if you occupied the prior two, or you will be paying tax on the profit.
Tax deferred exchanged in accordance with Section 1031 of the Internal Revenue Code are very specific in most areas when it comes to timing, but there are some vagaries. The specific areas include the time after closing of your relinquished property to name potential replacement properties, 45 days; the time for closing your replacement property after the closing of your relinquished property 180 days.
What isn’t specific is the time you must hold the property for it to qualify. Tax professionals will recommend what they call a “safe harbor” of two years, but it only says property held for investment in the Code. That can also be over one year these days, maybe. There are also case studies of longer holding periods negated by the service so you really have to hold as long as it makes economic sense as an investor and then abide by the acceptable 1031 Exchange protocols as they are practiced today.
If you have an improved investment property your tax preparer is likely taking depreciation on the property as a tax benefit to you. The longer the time of your hold on the depreciable asset the more depreciation you will have to recapture on the resale. That may be a tipping point to having you decide to complete a 1031 Exchange for maximum legal tax protection and portfolio sustainability. Consult with your tax adviser.
Various components of the house have an assortment of warranties. Your roof, well pump, siding, carpet, and more all have their own warranty. Some are transferrable to a new buyer, but it isn’t automatic so check it out if you can. Understand that concrete won’t be warranted for it isn’t a matter of if your concrete will crack, but when. There just isn’t a way to assure you that it won’t.
Make sure you understand what is involved to satisfy each timed performance action in your contract before you submit it. Can you reasonably make all the deadlines? Don’t count on an extension in this market, the seller may receive a higher offer after they accepted yours and be looking for a way out of your agreement with them. Understand the tax ramifications of your transaction as it is affected by the timing of your ownership and closing date. The IRS is giving some flexibility due to COVID but that won’t last forever so don’t rely on it unless you absolutely must from a financial point of view.
The abbreviated quote from Chaucer, “Time waits for no man!” is especially true in real estate. Don’t assume something will be there or you have forever to get things done. These are different times and there is competition. Stay focused, be compliant with the contract, and get things done in a timely manner.
If you are diligent along the way and later have a problem you are more likely to get good cooperation from your counterparts in the transaction than if you don’t respect the time of everyone involved.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com