November 2015 Phoenix Real Estate Update

Happy Thanksgiving!  


Phoenix Real Estate Update

I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  You can search the MLS from my website at www.greathouseaz.com.


Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or ftr9558@cox.net


Sincerely,

Pat Hune

Broker

greathouseaz@gmail.com

1st Southwest Realty

www.greathouseaz.com

Search the real MLS from my website!http://www.greathouseaz.com/

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity



Market Overview  

The Phoenix Real Estate Market has much to be thankful for: 


1) Home values continue to increase and are expected to end the year about 5% higher than 2014.

2) New home builder confidence is the highest it has been since 2005.

3) Interest rates are low and are expected them to remain low for the next few months. 

4) Foreclosures and trustee sales (aka distressed sales) are only a tiny part of the market at 5.9%. 

5) Pending foreclosures are down 25.4% from a year ago.

6) The number of homeowners underwater on their mortgages is only about 18% and this number continues to decrease. 

7) Arizona is expected to be #1 in future job growth which will in turn create more demand for housing.


Articles

1)  STAT Newsletter 

2)  Rental Market  

3)  Multifamily and Commercial Real Estate Trends

4)  Which Home Improvements Add the Most Value?  

5)  Real Estate Briefs

     a)   New Home and Apartment Building Permits Expected to Continue to Increase  

     b)  US Department of Housing and Urban Development Temporarily Eases Owner-Occupany     

           Definition for Condos 

     c)  Minimum Credit Score Increases for the Home in Five Program for FHA Loans 

     d)  Property Taxes Delinquent as of November 2 

6)  Tales from the Real Estate Trenches 

          Why Should Homeowners Keep All Paperwork Related to Home Purchases, Refinances and 

           Improvements?

 

****************************************


1) STAT Newsletter Link - STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   ARMLS® COPYRIGHT 2015


November STAT


STAT Newsletter and Real Estate Market Highlights

Commentary by Tom Ruff of The Information Market


In the first 9 months of 2015, sales volume averaged 12% ahead of 2014. Sales volume in October slipped to 2.4% on a year-over-year basis. The slip in year-over-year sales volume can be attributed to two factors: TRID and a cooling market. Supply is growing faster than last year while demand is slightly weaker. It is our suspicion that a few hundred sales got pushed back due to TRID as sales were lower than expected while pending & UCB numbers increased. If you view the Pending Price Index (PPI) as a razor sharp forecast, we had projected 6,600 sales in October while the actual number was 6,304. Therefore, the impact of TRID in October accounted for 296 fewer sales. That’s our story and we’re sticking to it. 


The median sales price is showing a 10.6% increase year-over-year, giving an inaccurate portrayal of overall market appreciation. The median needle is being moved by low supply and strong demand in the more affordable areas with little to no new construction. I’ve always been an advocate of median price comparison, primarily as an indicator of affordability. However, when measuring appreciation, it is always prudent to view all metrics available. The average price per square foot, the average sales price and the median sales price offer different perspectives. Each of these metrics has their own strengths and weaknesses, at anytime anyone of these might offer the best perspective of our market. It is my opinion that the price per square foot at present gives the best reflection of price appreciation over the past year, which is hovering around 5% annual appreciation. 


That’s the state of the resale market, it’s slow, but things are happening. There are some very interesting numbers coming out of the economy that may indicate what’s to come. For example - in the first half of 2015, the number of new households grew by 1.7 million nationally from the same period in 2014. This is the largest growth experienced in a decade according to DSNews using data from the U.S. Census Bureau. A household is formed in a few ways, (1) when an adult leaves the home of another adult and finds his/her own place or (2) when a group of people (not necessarily related) start living at the same address. The property could be owned or rented. (This is not to be confused with home sales.)  


The stock market regained in October with the DIJA, S&P 500 and NASDAQ showing around 9% increases. US auto sales surged past expectations once again, and remained at the highest levels in a decade. I am a firm believer that auto sales are a forward indicator. According to AutoData, auto sales rose at an annualized pace of 18.24 million in October 2015 while the consensus forecast was an annualized pace of 17.7 million sales. While car sales are up, new home production remains low.  New home sales are a leading indicator of economic activity, which means they are the first to turn up before a rebound and the first to decline before a recession. New home sales are important to measure, as significant changes in consumer spending often appear in autos and homes first. 


Bill McBride of Calculated Risk using data from housing economist, Tom Lawler, gives insight into new home construction from the builder’s perspective:   “One of the more striking aspects of the most recent ‘recovery’ in single-family housing production has been the incredible low production levels of new single-family homes that are ‘affordable’ to what used to be considered the ‘typical’ first-time buyer.”   The insights continued to say that builders are focused on affluent buyers and that many builders were watching and waiting to respond to the market. 


ARMLS Pending Price Index 

Our math on the PPI is projecting lower numbers than logically acceptable, leaning more on the model than the logical prediction. The ARMLS Pending Price Index projects a median sales price of $206,400 for November. Using more ARMLS secret sauce and my own logic, I predict a median of $210,000. We’ll see if our model holds up. Our last Pending Price Index projected an October median price of $212,500 with the actual median reporting at $213,000. In the last fourteen years the median sales price has risen 7 times, fallen 5 times and had no change twice between November and December. We begin November with 5,916 pending listings and 3,233 UCB listings giving us a total of 9,149 residential listings under contract. This compares to 9,020 listings under contract at the beginning of October. 


Our sales volume projection was 6,600 with actual sales of 6,304. The November 2015 sales volume will exceed November 2014 (4,989), but should be lower than the total of 6,304 in October 2015. STAT is projecting 5,600 home sales in November. There were only seventeen business days last year and eighteen business days this year. The sales volume in November has been higher than the sales volume in October only once in the fourteen years of reported data and based on these historical averages, the sale volume in November is on average 7.29% lower than October. 


2)  Rental Market Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.


November Rent STATS


3) Multifamily and Commercial  Real Estate Trends


Current Phoenix market trends data indicates an increase of 2.0% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of11.7% compared to last year's prices. County-wide, asking prices for Multifamily properties are 4.3% higher at $61,265 per unit compared to the current median price of $60,058 per unit for Multifamily properties in Phoenix, AZ.  There has been an significant increase in the sales prices for duplexes, triplexes and fourplexes with very little available under $200,000.  


Loopnet Commercial Trends


******************************


4)  Which Home Improvements Add the Most Value?

Craig Webb, Remodeling and Prosales, January 2015


Cost versus Value


Did a tepid housing market and rising job costs have pushed back the payoff on remodeling projects?  This 2015 edition of the Cost vs. Value Report, which compares changes in job costs with Realtors’ perceptions of what those jobs bring to a home’s price at resale, reflects the mixed messages that were delivered by the housing market in 2014. In housing, it took until October before monthly sales of existing homes topped their year-earlier numbers, and the increase in median price paid for a home dropped by roughly half between last winter and last summer, according to the National Association of Realtors. New-home sales also were lackluster.


That ho-hum performance might have influenced Realtors nationwide when they sat down last fall to predict the boost a remodeling or replacement project would bring to a home’s resale value. Compared with the previous year’s survey, the Realtors increased by up to 11.6% the value of 17 projects, but they reduced 18 projects’ predicted payback by as much as 8.32%. The average change was a gain of just 0.29%.


Costs rose consistently, values only half as often. That, in a nutshell, is why the latest Cost vs. Value Report’s overall cost-value ratio ended two years of gains by slipping to 62.2% for 2015. That’s a 3.9-point drop from last year but still the second-best number in the past five.


It’s no surprise that replacement jobs—such as door, window, and siding projects—generated a higher return than remodeling projects. That’s been the case since at least 2003. (See our historical charts for various project categories.) But the gap between the two categories widened by 3.8 percentage points this year even as both declined in value: Replacement projects showed an average return of 73.2% in this year’s report, just a smidgen below its 73.7% last year, while the cost-value ratio of remodeling projects sank to 60.8% in this year’s report from 65.1% last year.


When grouped by job type, siding jobs fared better than most, perhaps because of a rising perception nationwide of the value of curb appeal. Midrange vinyl siding replacement jobs were one of only five projects to rise in value, to 80.7% from 78.2%. A replacement job involving foam-backed siding slipped just half a point in value, to 77.6%, while the cost-value ratio for a fiber-cement replacement job dipped to 84.3% from 87.0%. Similarly, window jobs were no more than 2.1 points lower this year than in the 2014 report, and they ranked between ninth and 16th in overall payback.


In contrast, kitchen remodels declined as much as 6.6 percentage points, while the drop for bathroom additions and remodels was more modest, slipping 3.8 points or less.


As a general rule, the simpler and lower-cost the project, the bigger its cost-value ratio. Three of the four projects that cost less than $5,000 for a pro to do were ranked in the top five for cost recouped, and the other two were in the $5,000-to-$25,000 price range. No project costing more than $25,000 ranked better than 14th.


One of the Report’s great values is that it shows how the new-home market and competition for jobs influence remodeling projects. For instance, when Realtors took the Cost vs. Value survey in the pre-housing-boom year of 2003, the average project cost $38,286. The Realtors said that those jobs delivered $31,591 in resale value, producing a cost-value ratio of 82.5%.


Two years later, as the housing boom began, the cost-value ratio climbed to 86.7%. During the next two years, in 2006 and 2007, the rush to build new homes meant that remodelers and materials both were in short supply. Project costs rose 17.3% in 2006 and another 10.5% the next year, while the value of that work—possibly because of the glut of new homes entering the market—rose 2.9% and 1.8%, respectively. That pushed the overall cost-value ratio down to 70.1%.


Then came the crash. Costs sank 10.4% in 2010, another 1.9% in 2011, and 6.0% in 2012, in part because remodelers were scrambling for work. But Realtors’ valuation of the payback of those projects fell even more, dropping 22% between the 2010 and 2013 reports. Since then, a rebound in housing prices pushed the ratio in last year’s report to 66.1%. And now, the so-so market brings us back to 62.2% in this year’s report.


One could argue that this general decline might have been influenced by the fact that, over the years, more than 20 projects have been added to a Cost vs. Value Report that in 2003 had just 15 jobs. As it turns out, the rise and fall of those original 15 projects is virtually the same as for the Cost vs. Value as a whole, as is its end point: 62.0% for the 15 projects in this year’s report.


In summary the improvements with the highest return on investment are:

Replacing the front door

New siding -  (for those of us with stucco exteriors consider repairing the stucco and painting as the alternative improvement)

Minor Kitchen Remodel - Refacing or refinishing the cabinets, upgrading cabinet hardware, replacing the counter tops and appliances should cost around $20,000

Adding a deck - This is more attractive than a sunroom or an Arizona room which are more expensive to build and harder to heat and cool.

Attic bedroom remodel

Garage door replacement


Editor’s Note -  It has been my experience a home owner getting ready to sell should not invest in expensive updating or upgrades just to sell the house.  I can’t tell you how many times I have seen brand new carpet pulled out a few days after escrow closed.  This is because the buyers were installing a type of flooring to better meet their wants and needs.  That being said if the house has not been painted in 20+ years or the carpet is heavily worn, smells, dog chewed or stained putting in a base grade carpet will make the house much more appealing and is relatively inexpensive.  Strong paint colors can turn buyers off so a neutral paint job helps a lot and is relatively inexpensive.  Again the fresh, clean look of a new paint job makes a huge difference to buyer. If the appliances are in poor condition consider shopping for used appliances in better condition.  Sometimes owners remodel and  throw out  their old appliances what are still in great condition.  The next step is to clean, clean, clean. If the house has an awkward floor plan staging may go a long way to help the buyers understand how to arrange furniture to make the house livable. The bottomline is a house needs to be clean and smell good.  It should be in good mechanical shape with the HVAC unit, pool, roof, plumbing and electrical in working condition.  If there are deferred maintenance items and the seller cannot afford or does not want to repair then the price will need to be adjusted down accordingly.  Consult with a real estate professional to ensure you spend your money on the right improvements to maximize the sales price.


Craig Webb is editor-in-chief of Remodeling and Prosales.  Follow him on Twitter at @craiglwebb or cwebb@hanleywood.com


**********************************

5) Real Estate Briefs


a) New Home and Apartment Building Permits Expected to Continue to Increase  

Elliot D. Pollack, CEO Elliot D. Pollack and Company, November 2015


The recent strength in the new single-family home market has translated into more optimism on the part of the Blue Chip Consensus Panelists. The panel now expects about 15,500 single-family units will be permitted in Greater Phoenix this year: that’s up from fewer than 11,000 units last year. The panel also expects the single family market to remain strong. For 2016, the panel expects nearly 19,300 units (a gain of about 25%) and nearly 22,900 units (a gain of another 19%) in 2017. This would be exceptional strength over an extended period of time and would bring the market closer to normal. Such a significant increase of permits over a two year period is going to be interesting to observe. Home builders have already expressed concerns about an inability to get sufficient skilled workers to build efficiently even at the 2015 level of units. Ultimately, the problem will be resolved even if it means higher salaries and, therefore, higher home prices.


Apartments are also expected to remain strong. Permits are expected to approach 7,000 units this year, 6,800 in 2016 and about 7,200 in 2017. On the other hand, unit absorptions are expected to remain at about 6,000 per year through 2016 but increase to about 6,700 units in 2017. The result is that vacancy rates, as expected, will remain low for an extended period of time. This suggests higher rent and will, ultimately, lead to more construction.


Overall the construction picture is improving fairly rapidly. The single family market, while way down from the previous peaks, is certainly making a significant recovery from the levels of earlier this decade. Apartments remains strong and vacancy rates are expected to continue to decline.



**********************************


b)  US Department of Housing and Urban Development Temporarily Eases Owner-Occupany Definition for Condos   

Donna Timmerman, On Q Financial, November 2015


In an effort to increase affordable home options for first-time and low to moderate income buyers HUD has changed the how the owner-occupant ratio is calculated.  Properties owned as second homes will now be considered owner occupied.  This change provides expansion of eligible condominium project insurance coverage and provides revised requirements for obtaining condominium project recertification.  The condo community will have to provide evidence of the number of condos investor-owned versus owner-occupied.  Typically this comes from the Homeowner’s Association (HOA) who will complete a questionnaire.  


In order to qualify for financing 51% of the condos must be owner-occupied. One entity cannot own more than 10%.  If a community has this then they will be issued something called a condo certification.    Communities close to the 51% may now be able to qualify for a condo cert allowing buyers to purchase using financing including FHA loans.  If there is no condo cert then the buyer pool is limited to cash buyers only which tends to depress values.  The ability to buy with financing typically improves property values as there are more buyers competing for the available homes.  Unfortunately this change will not help communities with high tenant ratios of 60% or more.  One factor that may help the number of owner-occupants  increase is the number of baby boomer retirees that either have cash or can take a loan out on their current home to buy.  If the severe winter weather continues in the mid-west, central plain states and east coast there may be a high demand for inexpensive, lock and leave winter housing like condos.  


**********************************


c)  Minimum Credit Score Increases for the Home in Five Program for FHA Loans 

Donna Timmerman, On Q Financial, November 2015


A recent change to the FHA loan program called Home in Five created some confusion.  Effective with loan reservations on or after December 1st 2015, all FHA loans submitted to U.S. Bank for purchase must have a minimum decision Credit Score greater than or equal to 660 for all borrowers on the application. This change is only for the Home in Five program not all FHA Loans.  All Home in Five FHA loans must follow the new minimum Credit Score requirements as outlined below:


Minimum Decision Credit Score:

• If a tri-merged credit report is used, the middle score must be 660 or higher.

• If a merged credit report only returns two scores, the lower of the two scores must be 660 or higher.

• If a merged credit report only returns one score, that scores must be 660 or higher.

 

Debt-To-Income (DTI) Ratio

• Maximum DTI of 45%, for loans approved through an Automatic Underwriting System. 


What is the Home in 5 Program?

This is free money available to help home buyers cover the down payment and closing costs so they can purchase a home in Maricopa County.  Qualified home buyers can get the Industrial Development Authorities, or IDAs, of the City of Phoenix and all of Maricopa County to pay 5 percent of the buyer's original loan amount to cover the down payment and closings costs.  For a home priced at $300,000, that’s $15,000.  This is considered a grant and not a loan so the buyer does not have to pay this money back. This program may not last forever.  Buyers should act quickly to see if they can qualify for this program.  Not all lenders participate in the program.  If you are interested in learning more contact Donna Timmerman or Kim Lynch at On Q Financial - 480-305-6243 or email kim.lynch@onqfinancial.com or donna.timmerman@onqfinancial.com.


How the Home in 5 Program Works.

Five percent of the loan amount is given to a borrower to cover their down payment and a portion of their closing costs. 

Some of the highlights are:

5% down payment assistance. Assistance is calculated as 5% of the initial principal balance of mortgage loan.

30 year Fixed Rate Home Loan with Competitive Interest Rate (set by Industrial Development Authorities or IDA) 

**The interest rate may change periodically to stay competitive with the market**

This is a grant, so no repayment is required

Eligible loan types: FHA, VA, or USDA-Rural

Minimum 660 credit score

Maximum of 45% debt to income ratio

There is no First Time Homebuyer Requirement

The properties can be new or existing residential properties, 1-4 units, detached or attached, condos (provided they have a condo certification), or town homes. 

Maximum qualifying income of $88,340

Special incentives for veterans, teachers, first responders and detention officers

Military Down Payment Assistance is increased to 6% (Qualified Veterans, Active Duty Military, Active Reservists, Active National Guard)


Homebuyer & Program Eligibility

·  Homebuyers must have a minimum FICO credit score of 660 (680 for conventional loans with  LTVs from 95.01% to 97%) and maximum 45 debt-to-income (DTI) ratio.

·  Standard loan guidelines exist for qualification (i.e., adequate income, acceptable credit, and down payment requirement).

·  All homebuyers must attend a homebuyer education course through a HUD-approved housing counseling agency located within Arizona and obtain a certificate of completion.       

   The homebuyer may attend an 8-hour face-to-face homebuyer education course or take an 8-hour equivalent course on-line.

.  If taking an on-line course, you must complete the course through an approved agency. 

.  Homebuyers may purchase a home anywhere in Maricopa County, including in the city of Phoenix.

·  Buyers must occupy the home as their principal residence within 60 days of closing.

·  The program may only be used to purchase a home (i.e., no refinancing).


Special Incentives for Qualified United States Military Personnel & Veterans, Teachers and First Responders (See information on qualifications below)

Qualified individuals may receive an additional 1% down payment/closing cost assistance for a total grant of 5%.   (The homebuyer receives a net 4% down payment assistance after a 1% origination fee is paid to the Participating Lender.)  Veterans receive 6 percent.  Since Veterans are already eligible for 100 percent financing the 6 percent covers all of their closing costs.  This essentially allows veterans to buy a home with no out of pocket costs.  It also improves a Veterans negotiation position as they do not have to ask the seller to cover closing costs.  There is a minimum credit score requirement of  660, and the borrowers household income cannot be higher than $88,340. The maximum sales price of a home in Maricopa County is $300,000.  Borrowers do not have to pay the money back – it is considered a grant and not a loan.


“Qualified United States Military Personnel” include Qualified Veterans, active duty United States military, active United States Reservists, and active members of the National Guard.

 

"Qualified Veteran" is a person who served in the active military, naval, or air service, and who was discharged or released therefrom under conditions other than dishonorable (as provided in 38 U.S.C. Section 101.

 

"Teachers" are individuals employed full time by a state-accredited public or private school that provides direct services to students in grades pre-kindergarten through 12.

 

“First Responders” include:

Peace Officers, as defined in A.R.S. § 1-215, certified by the Arizona peace officer standards and training board, and employed full-time. 

Professional firefighter, as defined in A.R.S. § 9-901, employed full-time as a member of an organized and paid fire department.

Emergency personnel, are those individuals who are employed full-time and whose primary responsibility is the care of patients in an ambulance, to include the occupations as defined in A.R.S. § 36-2201.

 

Detention Officers, as defined by A.R.S. § 13-3907, means a person other than an elected official who is employed by a county, city or town and who is responsible for the supervision, protection, care, custody or control of inmates in a county or municipal correctional institution.  Detention officer does not include counselors or secretarial, clerical or professionally-trained personnel.

 

***************************

d)  Property Taxes Delinquent as of November 2 

Pat Hune, Broker at 1st Southwest Realty


If you did not pay your property taxes they are now delinquent.  The due date for the first half tax is October 1. The first half installment becomes delinquent after 5:00 p.m. on November 1. If Nov 1 falls on a Saturday, Sunday, or legal holiday, the time of the delinquency is 5:00 pm on the next business day.   The second half tax is due March 1 of the following year and becomes delinquent after 5:00 p.m. on May 1. If May 1 falls on a Saturday, Sunday, or legal holiday, the time of the delinquency is 5:00 pm on the next business day.  You may pay both halves together until December 31.   If you miss a deadline you may owe fees plus interest charges of 16% per year prorated monthly.  To avoid paying on the wrong property, always check the property description and parcel number on the tax statement with your records.


If you have a mortgage on the property the taxes are typically paid by the mortgage holder.  However this is not always the case so be sure to look at your mortgage statement or call your mortgage company to confirm.  


Taxes for Maricopa County can be paid online at the Maricopa County Treasurer’s Office.


***************************

6)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty


Why Should Homeowners Keep All Paperwork Related to Home Purchases, Refinances and Improvements?


Late last year a client asked me for a copy of the final settlement statement (aka Final HUD)  from when he purchased a house in 2004.   Unfortunately I no longer had a hard or soft copy of this document due to several computer changes, at least one hard disc drive crash and the annual clean out of hard copy files older than 7 years.  I checked with the title company and they no longer had the records.  I even tried asking the seller but she had just shredded the documents related to the sale a few months before.  Luckily a couple months later when I was cleaning out old hard copy files I discovered a box labeled 2004 but it looked like a 2009 so it had never been discarded.  (Sometimes my horrible handwriting comes in handy.)  Though I did not have the official final HUD I did have a hard copy of the preliminary HUD from the day before close.  This was probably close enough for the client who needed this document for his tax return.


Why was the owner so desperate to find the settlement statement?  This was because he, like many other buyers during the real estate boom of 2004 to 2007, had turned the property into a rental because he could not afford to sell but had to move due to a job transfer .  When a personal residence becomes a rental the owner has to establish a basis for tax purposes in order to calculate depreciation.  Depreciation is a wonderful write off but when a property is sold the dreaded depreciation recapture occurs potentially creating a tax liability.  In addition if the property was an investment property and being sold for less than the purchase price plus improvements the loss can be written off.  Note that there is a maximum of $3000 write off per year unless there are other long term investment gains. Check with your accountant for more details.   


If you are selling your home and are lucky enough to have a gain you may have to pay capital gain taxes.  The IRS excludes up to $250,000 of that gain from your income if you are single. Married couples filing a joint return may qualify to exclude up to $500,000 of the gain.  To qualify for the exclusion  you must meet both the ownership test and the use test. You are eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete details.


This brings us to the importance of keeping copies of ALL receipts for improvements.   For example you purchase a house for $200,000.  After living in the house for a few years you  decide to do a major renovation at a cost of $250,000. A few years later you decide to sell and the house sells for $650,000.  If you cannot provide documentation for the costs of the renovation the IRS will tax you on the capital gain of $200,000.   ($650,000 sales price - $200,000 purchase price = $450,000 - $250,000 IRS exclusion = $200,000).  If you can document the $250,000 renovation there would be no capital gain and therefore no tax.  Check with your accountant to determine if all of the renovation costs can be deducted from the gain.


You may think capital gains tax rate would be 15%.  But are you sure?  Remember we are talking about the IRS who is notorious for making things as confusing as possible.  According to Bill Bischoff of SmartMoney "Contrary to popular opinion, not all of your long-term capital gains are taxed at 15%. No, that would be far too simple. So in addition to the 15% rate, there is a 20% rate for upper-income investors and there are several additional long-term capital-gains rates, which can range from 0% to 28%. Last but not least, there’s potentially a 3.8% Medicare surtax on capital gains reaped by upper-income investors. Which category your profit will fall into depends on your income-tax bracket, the type of asset you sold, how long you held it and when you sold it. Keep in mind, short-term gains (on assets held for one year or less) are taxed at your ordinary income rate, which can range from 10% to 39.6%." Check with your accountant to determine your capital gains tax rate.


Military Exclusion - If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. You are on qualified official extended duty if for more than 90 days or for an indefinite period, you are:  At a duty station that is at least 50 miles from your main home, or Residing under government orders in government housing.


IRS Resources and Publications - Publication 523, Selling Your Home, provides rules and worksheets. Topic 409 covers general capital gain and loss information.  If you receive an informational income-reporting document such as Form 1099-S, Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. Additionally, you must report the sale of the home if you cannot exclude all of your capital gain from income. Use Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return. Consult with your accountant for more details.


The moral of this story is keep every receipt for every expense while you own a property.  After the property is sold keep them for an additional seven years in case of an IRS audit.