Home Sellers, THE TAXMAN COMETH… but NOT if a Home Stager Can Help It!

Posted on RealEstaging
31.03.2007
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While those of us at Real Estaging have seen first hand just how home sellers have come to enjoy numerous unexpected benefits of staging. The 2 primary reasons sellers initially still choose to hire a stager is they hope to sell their property faster and/or for more money. However, there is yet another positive reason, how a home sellers can benefit from staging, that is often overlooked. Fees for staging services can be considered an advertising fee (See IRS Publication 523) and influence a home seller’s capitol gain (or loss) on their property that has been sold. Of course there are rules and restrictions, so here our a short explanation of how a home seller’s capitol gain (or loss) is impacted.

What is IRS Publication 523 and what does it say? IRS Publication 523 explains all tax rules that apply when a home seller sells their main home, including advertising expenses and how they influence the seller’s capital gain or loss on the property. It does not cover the sale of a rental property, second home or vacation home.

What does IRS Publication 523 consider seller’s MAIN home? The term “main home” usually refers to the home the seller lives in most of the time. A main home can be a house, houseboat, mobile home, cooperative apartment, or condominium.

How is capital gain or loss figured on the sale of a seller’s main home? In order for a home seller to calculate the capital gain or loss realized on the sale of their main home, they must know the selling price, the amount realized and the adjusted basis.

What is the selling price? The selling price is the total amount a seller receives for the sale of their home, including money, all notes, mortgages, or other debts assumed by the buyer as part of the sale and the fair market value of any other property or services they receive.

What is the amount realized? The amount realized is the selling price minus selling expenses. Selling expenses include commissions, advertising fees*, legal fees and loan charges paid by the seller.

What is the adjusted basis? During the duration of ownership of a main home, increases or decreases (adjustments) may have been made to the basis (base cost, either bought or built, of home). This adjusted basis must be determined before capital gain or loss can be figured on the sale of the home. There are many rules when computing the adjusted basis. Consult a Tax Adviser to accurately determine the adjusted basis.

To quickly estimate capital gain or loss, apply the following formulas:

First Calculate: AMOUNT REALIZED = Selling Price - Selling Expenses
Next Calculate: CAPITOL GAIN/LOSS = Amount Realized - Adjusted Basis

*Staging a home for re-sale can be considered an Advertising fee. There are no time limits on the Advertising Fees related to the sale for the IRS. However, it is important to note that if a property does not sell and is taken off the market, expenses for that transaction are NOT deductible in the future.

IMPORTANT: EVERY HOME SALES TRANSACTION IS DIFFERENT. To know how this Tax Rule affects you particular home sale in your state, PLEASE check with a Tax Adviser or Tax Consultant regarding IRS Publication 523 and how it may impact your individual tax situation.The complete explanation of IRS Publication 523 can be found on-line at: http://www.irs.gov/publications/p523/index.html

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