By Erica Christoffer, Multimedia Web Producer, REALTOR® Magazine
Tax code is complex and often difficult to understand, including when it comes to the sale of a home. Help your sellers understand the rules and ways in which they can save money with Julian Block’s new book, Home Seller’s Guide to Tax Savings.
A nationally recognized tax attorney, Block outlines clear and easy-to-understand methods to lower one’s taxes. Specifically, Block’s book offers advice for home owners who profit more than $500,000 on a sale for married couples and $250,000 for single sellers (or couples who file separately). Those who profit below these respective amounts at closing are exempt, as they qualify for tax exclusion.
What was your main goal in writing this book and how can it serve as a resource for REALTORS®?
Block: My perception is there is a need for this type of book. It’s a way for the REALTOR® to reach out to their clients and provide them with a resource that clearly outlines tactics to reduce the amount of taxes owed following the sale of a home.
Maybe your client is operating a business out of a home. Maybe they’re going through a divorce. Or maybe they’re a widow or widower who is selling a home. Or they live in a vacation home-turned permanent residence. It’s all covered in the book. People can also make deductions to reduce their taxable profit if they’ve kept track of the improvements they’ve made to their home. More than 150 items qualify.
This book is really a way for the REALTOR® to point out this information to the client – including the fact that whatever commission the REALTOR® is receiving is tax deductible by the client. All of this will help the seller build up the cost and reduce the taxable profit.
How should real estate professionals respond when they get questions about taxes?
Block: The REALTOR® should not respond with specific advice because there could be some miscommunication, or the client could be asking about something that’s not permissible. And if the REALTOR® does answer and turns out to be wrong, then he or she could risk future business or recommendations from the client. If a REALTOR® gets a question about taxes, and if their clients’ profit is above the exclusionary level, then they should suggest getting some professional tax advice. They can talk taxes with me and other advisers at Keen. But it’s best to steer clear of giving specific advice themselves.
My book is one of the few written in an understandable way. There is a free IRS Publication 523 that deals with rules for the sale of a home. Most of it is understandable language. But the IRS publications are explanations of what the law is; they do not provide advice on tax planning. If clients want advice on tax planning, they should go beyond that and get a book like mine (although mine isn’t the only one out there). It might also help some to take an adult education class on tax planning.
You mention that most tax payers are very unfamiliar with tax rules. Why is that?
Block: There’s just not much out there in plain English. Not only are most home owners unfamiliar with tax rules, surveys have found that most people still believe the pre-1997 rules still apply – where if you sold your home and bought a replacement that cost at least as much as the sale price, that you’re relieved of taxes. Most don’t know the rule that provides tax relief on profits up to $500,000 for couples, $250,000 for single filers.
I deal with losses, short sales, and foreclosures in the book. There is IRS Publication 4681 – Now, I do this for a living, and at least according to some people say I’m reasonably good at this, but I even have trouble understanding IRS Publication 4681. For most home sellers, it would just be beyond their grasp.
What’s a little-known or underutilized tax tip that you disclose?
Block: Say your clients are married and they’ve sold a home and the profit is more than $500,000. Have they had sizable losses on stock market investments outside of retirement planning? The way those rules work, if you have these losses and you don’t have capital gains, the most you can deduct is $3,000 per year. But if they don’t have any capital gains, it might take years to write off their capital loss carry forward. If a client has unused capital loss carry forward and they sell a home for a profit of above $500,000, the client can offset part of the profit with the capital loss carry forward. That’s an interesting point for a lot of people and it’s in the book on page 19.
Can you give an example of a need-to-know tax strategy that you cover in your book?
Block: I do cover what is and isn’t deductible when people take out home equity loans. I also cover what’s deductible when people refinance their mortgages. And, although not applicable to the sale of a home, I cover casualty, theft and damages – relevant in light of the recent tornadoes in Alabama that damaged and destroyed homes.
Do you have any tips for real estate professionals on how to stay abreast of tax code changes?
Block: Most mainstream media outlets cover such major legislation. And, of course, NAR also publishes press releases with major changes to tax code.