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Profiting in the home real estate market is all about timing

On Behalf of | Aug 26, 2019 | Residential Real Estate |

Home ownership is a foundational pillar of the ideal of living the American dream. As a practical matter, the introduction of the 30-year mortgage during the Depression Era made the dream a more realistic possibility for the average California resident, and home ownership boomed after World War II and continues expanding through this day. It was once more common for homeowners to stay in one home for longer periods, but society is now more mobile, and many people trade-up homes to cash in on increasing prices. However, there are some considerations about the timing of when and under what circumstances residential real estate should be sold to maximize profitability.

Personal finance experts often cite what is called the five-year rule for selling one’s primary residence: Do not consider buying a house unless it is planned to be kept for at least five years. The primary reason for this is factoring in the transaction costs associated with the sale of a home on both ends. Typically, five years is the minimum time it will take for the value for the property to sufficiently rise to build equity so as to recoup costs and realize a profit from the sale.

A second consideration, perhaps equally important, is the ability to avoid paying taxes on the sale of the property. Although the profit on the sale of a home is taxable as a capital gain, it can be excluded if the home was used as a primary residence and occupied as such by the homeowner for at least two of the last five years prior to sale. The exclusion is up to $250,000 for a single person and $500,000 for a married couple filing jointly.

Of course, plans are often subject to change for any number of reasons or unexpected events. If it becomes necessary to sell a home for any reason, a consultation with a residential real estate lawyer may be beneficial.