Hi all! My first post here- hope to participate a lot in the future!
Problem stated simply: We have a house that is bleeding us dry and we have finally wised up to that fact.
We bought it last June 2013 for $425k. (The bank said we "qualified" for 500k- so glad we didn't listen!). The redeeming factor in this, is that our realtor thinks it's now worth in the $510-$550k range. We said "AWESOME!", put a sign in the yard three weeks ago and listed it for $525k.
AND THEN.....we remembered Uncle Sam's Capital Gains taxes. We talked to a tax guy, (we usually do TurboTax), and he said, "come back to me when it's time to do your taxes and we'll find a work-around".
I'm not exactly sure how I feel about this. The implied "lie" makes me feel kind of icky, but if it's a truly legal maneuver, who am I to judge? But also, what if we CAN'T find a truly legal "work-around"? My very limited math skills/tax knowledge makes it look like we'd owe about $9k.
$520k hypothetical selling price
- 425k purchase price
- 4k carpet replaced
- 21k agent commission (friend rate)
= $65k gains, taxed at 15%= $9,300 penalty
Of course, we could just delist and relist in April. But we are literally living paycheck to paycheck, with no 401k contributions at all, no fun $ for the kids, barely making minimum credit card payments. We have a car (btw, both are paid for, 10 years old and 200k miles) that needs some serious work, possibly replaced. We don't have cable or land lines, only pay for one cell phone. I've already reduced my grocery budget; no more organics for us! :) I can list our exact numbers if that helps with your ability to give advice.
I don't like to speculate on the housing market- who knows what April 2015 will look like for the market in my area? What if it crashes? On the other hand, what if it continues to appreciate? My gut tells me to take the money (and possible penalty) and run FAR FAR away to a "tiny" house as soon as possible. But there's enough of a question in my mind, that I thought it best to run our situation past you fine folks.
So, what would you do? Coast until April, accruing interest on the credit cards, no retirement contributions, crossing fingers that the housing market doesn't depreciate, and hoping no job losses or major life issues come our way? Or sell ASAP, accepting the $9k penalty but hope the tax man can deliver his "work around"?
THANKS IN ADVANCE!!