"SHOW ME THE MONEY!" Admit it, that’s what you’re thinking when you consider selling your house. Chances are good that you’ve even already mentally spent all of the money that hope to receive. Well here are a few things to consider before you take that vacation to Tahiti. There is a cost to getting your home sold aside from just paying off the mortgage. There are taxes, realtor commissions, attorney fees & adjustments. Sometimes there’s even closing costs and seller concessions to consider.
Lets start with taxes. I’m not a CPA so you’ll need to consult with an Accountant to determine the exact impact selling your home will have on your tax liabilities if you want an exact number for your particular situation. In Connecticut, you (the seller) are responsible for paying Real Estate Conveyance Taxes when you sell a property. Some real estate transactions are exempt from conveyance tax, including transfers between spouses, sales to certain non-profit entities, and foreclosures by sale. The state conveyance tax is .0075 (.75%) of the sales price up to $800,000.00. Any amount above $800,000 is taxed at .0125 (1.25%). The municipal conveyance tax is 0.0025 (.25%) for most towns. There are 18 eligible municipalities that are permitted to impose a tax of up to 0.005 (.5%). A sale of property for $800,000 that is not exempt from the conveyance tax and not located in one of the eighteen towns with higher rates would require payment of $8,000 in conveyance taxes: $6,000.00 in state tax (.75%), and $2,000 in municipal taxes (.25%). Property valued at $1,400,000.00, would require payment of total conveyance tax of $17,000. The state tax would be $13,500.00: .75% of the first $800,000, plus 1.25% of the remaining $600,000. The municipal tax in a town imposing a tax rate of .25% would add $3,500.00 in conveyance taxes. (Judith Ellenthal of Cacace Tusch Santagata Attorneys at law). The 18 towns permitted to maintain higher rates are: Bloomfield, Bridgeport, Bristol, East Hartford, Groton, New London, Hamden, Hartford, Meriden, Middletown, New Britain, New Haven, Norwalk, Norwich, Southington, Stamford, Waterbury & Windham.
Then there’s capital gains taxes. Capital gains tax is a tax imposed on the profit (capital gains) resulting from the sale of an investment. For example, capital gains are commonly realized after the sale of stocks and property. To calculate capital gain, subtract the purchase price from the sales price. Sale price – purchase price = capital gain. When you sell your primary residence, you can make up to $250,000 in profit if you’re a single owner, twice that if you’re married, and not owe any capital gains taxes. In most cases, you can make tax-free profits of $250,000, or $500,000 depending on your filing status, every time you sell a home. There are a few rules to follow, of course. First, the property you’re selling must be your principal residence. That means you live in it. This tax break doesn’t apply to a house or other property that you have solely for investment purposes. In those cases, the usual capital gains rules apply. You also must live in that principal residence for two of the five years before you sell it. This is known as the use test. It also means, practically speaking, each sale must be at least two years apart. That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Then two years later, you can do the same thing, again and again, every two years. Again, I’m not giving tax advice or legal advice. All information in this blog and on the video are simply a result of my research on the topic. Consult the advice of a CPA or Attorney for details on how you will be taxed. Everyone’s situation is different. Your Realtor can help you determine a ballpark figure as to the amount of taxes you’ll need to pay. But the exact amount can’t be calculated until you know exactly how much the buyer is going to pay for the property. There’s no way to know that ahead of time.
As for Realtor commissions, this cost is usually between 5%-6% of the sales price. So if your home sells for $250,000, you’ll pay between $12,500 - $15,000. I know that this seems like a lot but most sellers have misconceptions as to where this money actually goes. First, most Realtors have to split this with their brokerage company and other cooperating brokers. So lets take that high number of $15k. After closing, your Realtor may have to give $7,500 to the agent that brought the buyer, then go back to the office and split the remaining $7,500 with their broker leaving the Realtor with only $3,750. Oh, and it doesn’t end there. If you have a good agent, they’ve probably also spent money (before the sale) by placing your property on the MLS, other top websites such as Zillow, Trulia and others, put up signage, placed the property in local real estate circulations etc etc. All of this costs money! This doesn’t include the time and gas that the agent spent showing your home to potential buyers. Oh, and let’s not forget that Uncle Sam has to take his cut as well leaving the Realtor with around $1,000-$2,000 out of that $15,000 after everything and everybody is paid. I shoulda been a doctor 😔
Legal fees aren’t usually too bad. Usually between $500-$1,000
You’ll also have to consider adjustments. If you owe money on water/sewer, property taxes, condo/association dues etc, you’ll have to pay it or give the balance due to the buyer at closing. However, it there’s an overage, this could play in your favor, one adjustment that often plays in the seller’s favor it oil tank adjustments. This is where the buyer has to pay you for the oil that’s in the tank at closing. You bought it but they’re going to use it, so let them reimburse you for it :-)