What are the tax considerations from buying and owning a home
Among the most important for typical homebuyers are the Mortgage Interest Tax Deduction, Property Taxes (and the implications of CA Prop 13), and Tax Treatment on the Sale of a Home.
There are a number of tax considerations to think through when buying a home. Among the most important for typical homebuyers are the Mortgage Interest Tax Deduction, Property Taxes (and the implications of CA Prop 13), and Tax Treatment on the Sale of a Home.
The information below is provided for informational purposes only, and should not be considered legal or tax advice. Please consult a licensed financial or tax advisor for more comprehensive information.
The Mortgage Interest Deduction
The Mortgage Interest Deduction (MID)allows taxpayers to claim the interest on up to $750,000 of their mortgage as a deduction against their income for income tax purposes. If you had at least$750,000 in mortgage amount and were paying 4% interest per year, this would imply $30,000 in income deductions. The net benefit of the MID depends on your marginal tax rate, and whether you are itemizing your deductions. Assuming you are at the 32% marginal rate, and are itemizing, the net benefit would be $9,600 per year, or $800 per month.
Property Taxes (and the implications of CA Prop 13)
California’s Proposition 13, passed in 1978, limits the tax rate for residential properties in California. Under Prop 13, when a home is bought and sold, taxes on the property are initially limited to 1% of the value of the property (plus some other local taxes and assessments), and annual tax increases are capped at no more than 2%. Since California real estate has appreciated more than 2% over the last few decades, long-term homeowners pay significantly lower property taxes than those homeowners who bought similar homes more recently (property taxes are only reassessed when homes sell or there are major home improvements).
Tax Treatment on Sale
Financial gains from the sale of a home enjoy certain advantageous federal tax treatment. For example, taxpayers are allowed an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale. This means that a sizable amount of profit from the appreciation of a home can be enjoyed completely tax free in the event of a sale.
In California, Proposition 60 (1986)and Proposition 90 (1988) offer relief from the increase in property taxes associated with “downsizing” to a smaller property that may nonetheless have a higher fair market value than the assessed tax-value of their current property(this occurs because of California Proposition 13, explained above). Homeowners who are over 55 or permanently disabled can transfer the most recently assessed tax-value of their current property to a new home if they move to an equal- or lower-valued property. This allows homeowners to continue paying similar property taxes to their prior home, even if they buy a new property that would otherwise carry a much higher tax bill.
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We cover the entire Bay Area. We've helped clients buy homes in San Francisco, North Bay, East Bay and South Bay. We also cover LA and San Diego in Southern California.
We provide all of the services of a traditional real estate agent, with better data-driven tools, increased transparency and more responsive customer service. We can help with as little or as much of the home-buying process as you require. Some clients come to us with a home already found and a price in mind, and need assistance with assessing the home and executing the transaction. Others are still figuring out their budget, what they're looking for, and advice on where to focus their search. Wherever you are in your home buying journey, we’re here to seamlessly guide you through your home buying process - finding the right home, valuing it, understanding the disclosures, submitting a competitive offer, and closing the transaction. We're with you from start to finish.
Yes. Unlocked is a fully-licensed California brokerage (CalDRE #02060530) and all of our agents are fully-licensed California sales agents and members of the California Association of Realtors (TM) and the National Association of Realtors (TM).
With Unlocked, you’ll be working with one of our fully-licensed real estate agents to get all of the services provided by a traditional real estate agent, with better data-driven tools, increased transparency and more responsive customer service. So in many respects, your buying experience will be the same as working with a traditional real estate agent - only better!
In terms of how we’re different, firstly, we offer 1% cash back. This is the largest buyer’s rebate in California (that we know about)! That is tens of thousands of dollars that you can put that towards buying new furniture, renovating your kitchen and bathrooms or throwing that all important housewarming party (or more responsible uses like paying down your mortgage).
Secondly, our backgrounds are different than traditional real estate agents. We are a Stanford MBA and a Yale Law JD, who have also worked at some of the top management consulting, law and private equity firms (Bain & Company, Boston Consulting Group, Wachtell and Bain Capital). We leverage our data-driven, customer-oriented experiences to deliver a more insightful, analytical and responsive home buying experience.
Thirdly, Unlocked has built custom analytical tools to bring data, insight and transparency to the key buying decision points and streamlined the buying process. For every home you’re interested in, we provide our Custom Valuation Report, an easy-to-interpret spreadsheet of recent comparable transactions, competing listings and third-party valuations, as well as our Disclosure Review Summary, a comprehensive summary of the 200+ pages of disclosures.
All-in-all, we’ve designed the buying experience that we would have wanted when we bought our homes, and we’re sure you’ll love it, just like our current and past clients have (check out our Yelp reviews).
One of our licensed real estate agents personally leads each transaction and will be your day-to-day point of contact throughout your home buying journey. We work closely as a team, and are able to jump in for each other if and when you have a time-sensitive request.