Friday, February 2, 2007

Greenwich Real Estate Market Explained

Do I qualify for $250,000 home-sale tax break?

Realty Tax Tips-Part 1: Rules for occupancy, divorce, death

Suppose you could receive up to $250,000 tax-free cash. Better yet, suppose you could receive up to $500,000 tax-free. Still better, suppose you could receive this tax-free money over and over again, but not more frequently than once every 24 months.

Stop dreaming. It's possible. Thanks to Internal Revenue Code 121, millions of U.S. home sellers enjoy these tax-free benefits each year when selling their principal residences. But it is important to understand the simple rules.

HOW TO QUALIFY FOR THIS TAX BREAK. Whether you own and live in a house, condo, cooperative apartment or other type of principal residence, you can qualify for Uncle Sam's most generous tax exemption. To be eligible, you must have owned and occupied your primary dwelling at least 24 of the last 60 months before its sale.

Single home sellers can qualify for up to $250,000 tax-free profits. A married couple filing a joint tax return can qualify for up to $500,000 tax-free capital gains if both spouses meet the occupancy test even if only one spouse's name is on the title.

The method of holding title doesn't matter. Title can even be held in a revocable living trust, as millions do, to avoid probate.

However, if there are two co-owners not married to each other, then both names must be on the title for each to qualify. Military and Foreign Service members have special generous rules allowing the 24-month occupancy period as far back as 15 years before the home sale.

If you bought your principal residence as recently as 24 months ago, and occupied it since then, you meet the ownership and occupancy test. The 24-month residency need not be continuous. Brief temporary absences, such as for a 30-day vacation, count as occupancy time.

However, if you acquired your home in an Internal Revenue Code 1031 tax-deferred exchange as a rental property, and later converted it to your principal residence, for such sales after Oct. 22, 2004, you must own the property at least 60 months (24 of which it must be your principal residence).

Home sellers of any age can qualify. It doesn't matter if you buy another replacement home or not after the sale. Nor does the dwelling have to be your residence on the date of sale.
For example, if you lived in your primary home 24 months, and then rented it to tenants up to 36 months before the sale, you still qualify for this tax exemption.

IF YOU HAVE TWO HOMES, DETERMINING YOUR PRIMARY HOME ISN'T ALWAYS EASY. Suppose you own a "summer home" and a "winter home," as millions of U.S. homeowners do. You spend about six months each year in each home. Both residences therefore meet the 24-out-of-last-60-months IRC 121 ownership and occupancy tests.

But the IRS says only one residence can be your "main home." This issue was vital in the tax case of Guinan v. U.S. (2003-1 USTC 50475). The Guinans sold their Green Bay, Wis., home where they spent more time each year than in their other residences. The Wisconsin home met the 24-month ownership and occupancy tests. The owners kept bank accounts and automobiles in Wisconsin.

But the U.S. District Court ruled it was not their primary residence because the sellers never filed income tax returns from Wisconsin. As a result, they had to pay $45,009 capital gain tax on the sale of their Wisconsin home.

The IRS says principal-residence indicators -- if you own more than one residence -- are (1) place of employment; (2) principal abode for the taxpayer's family members; (3) address on taxpayer's federal and state income tax returns; (4) location of taxpayer's banks; (5) automobile and driver's license registrations; (6) voting location; and (7) civic affiliations, such as taxpayer's religious organizations and other membership groups.

LITTLE-KNOWN BENEFIT FOR DIVORCED AND SEPARATED HOME SELLERS.

Many divorced and separated couples are not aware they can still qualify for up to $500,000 total tax-free principal-residence-sale profits. If one divorced or legally separated spouse (called the "in spouse") qualifies for the $250,000 tax exemption by owning and living in the home at least 24 months of the last 60 months before its sale, the other spouse (called the "out spouse") can also qualify for up to $250,000 tax-free home-sale profits when the home is eventually sold.
This little-known tax break is often used when one spouse stays in the home until the children become 18 or 21 and the home is then sold with the profits divided between the ex-spouses.

ADJOINING VACANT LAND SALE CAN ALSO QUALIFY. Another little-known benefit of IRC 121 allows the sale of a vacant lot adjoining the principal residence to qualify for this tax exemption. However, the adjacent principal residence must be sold within 24 months before or after the lot sale.

UP TO $500,000 TAX-FREE HOME-SALE PROFIT IN YEAR OF SPOUSE'S DEATH. Although a surviving spouse should not rush to sell the principal residence in the year of a spouse's death, IRC 121(b)(2) permits use of the exemption up to $500,000 in the year of a spouse's death if a joint tax return is filed. In limited cases where a surviving unmarried spouse maintains a household for dependent children, this tax benefit may be available for two additional tax years.

However, a surviving spouse who inherits the deceased spouse's share of the principal residence should be aware he or she will receive a new 50 percent "stepped-up basis" to market value on the date of death. In community property states, the surviving spouse usually receives a new 100 percent stepped-up basis to market value if both spouses held title.

PARTIAL EXEMPTION IF YOU DON'T MEET THE 24-MONTH OCCUPANCY TEST. If you occupied your principal residence less than the required 24 months, but the reason for your home sale is (1) change of employment site meeting the moving-cost tax-deduction rules; (2) health reasons; or (3) unforeseen circumstances, you can qualify for a partial exemption based on the number of occupancy months.

The "unforeseen circumstances" rules are still evolving. The IRS allows these acceptable reasons: (1) divorce or legal separation; (2) death in the immediate family; (3) unemployment; (4) decreased income with the homeowner unable to pay the mortgage and basic living expenses; (5) multiple births from the same pregnancy; (6) damage to the home from a natural or manmade disaster or terrorism; and (7) condemnation, seizure or other involuntary conversion of the property.

If you qualify for a partial exemption, and you occupied the principal residence 18 of the 24 required months, for example, then you qualify for 75 percent of the $250,000 or $500,000 exemption.

TWO WAYS TO AVOID TAX ON MORE THAN $250,000 OR $500,000 HOME-SALE CAPITAL GAIN. If you will have a principal-residence-sale capital gain exceeding the $250,000 or $500,000 exemptions, there are two ways to avoid tax:

1. The first method is to convert your home into a rental property. Then it qualifies for an Internal Revenue Code 1031 tax-deferred exchange for another rental or business property of equal or greater cost and equity.

Most tax advisers suggest renting your former principal residence at least six to 12 months before exchanging it. IRC 1031(a)(3), known as a "Starker exchange," then allows selling the property, having the sale proceeds held by a qualified intermediary third-party beyond your constructive receipt, designating the replacement property within 45 days, and completing the acquisition within 180 days after the old property's sale.

2. The second method, allowed by IRS Revenue Procedure 2005-14 effective Jan. 27, 2005, allows use of both IRC 121 and IRC 1031 in a single property sale. This slightly complicated ruling is retroactive to tax years for which the statute of limitations has not expired.

Gain is first excluded under IRC 121 up to $250,000 or $500,000, and the remaining gain then can qualify for an IRC 1031 tax-deferred exchange. An example of this procedure applies where the principal residence was converted to a rental and then the property is "down traded" for another rental property after claiming the IRC 121 exemption.

SUMMARY: Internal Revenue Code 121 is a very generous tax exemption up to $250,000 or $500,000 that can be used over and over but not more often than every 24 months for qualified home sellers. For full details, please consult your tax adviser.
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Greenwich Real Estate - Buying A Home - Find Homes In Greenwich At InsideGreenwichRealEstate.com

BUYING A HOME:


1. Making the Decision to Buy:
The decision to purchase a home is often driven by the need for more space, the need to move to a new location or simply the desire to change one's life style. If you are unfamiliar with the area to which you are moving, the REALTOR you choose must make an effort to introduce you to the characteristics of the community and help you decide if this is a good match for your needs. Within any community there are variations by neighborhood, and these should become clear to you as you are shown properties in the community. By giving your REALTOR feedback, you can make the search process more efficient. If your REALTOR learns that you do not want to buy in a particular neighborhood, he or she will not show you properties there and will concentrate instead on those areas which interest you.


2. Selection of a REALTOR:
The selection of a REALTOR in a community such as Greenwich is made easier by the presence of the Greenwich Multiple Listing Service. Almost every real estate agent in the community is a member of the Greenwich MLS, which gives each REALTOR access to every property listed by every office in the membership. Therefore, it is not necessary to seek the services of more than one REALTOR.

In your selection of a REALTOR, you should look for someone with whom you are compatible. When you initially meet with a REALTOR, whether this is someone to whom you have been referred or someone you have randomly chosen, you will be asked to sign a buyer authorization form. Required by state law in order for the REALTOR to show you properties, provide you with information, and negotiate on your behalf, this agreement will state the time frame during which the agreement is in effect, the kind of property it covers, and the area of Connecticut in which it is effective. If you are uncomfortable making a commitment to a REALTOR, ask that the time frame be limited to a day, a week, a month or any time frame which you feel you need to determine whether you would like to work with this person. When you ascertain that the relationship is compatible, you can sign an extension of the time frame.

Since every REALTOR has access to the same properties through the Greenwich Multiple Listing Service, there is no need to use the services of more than one REALTOR concurrently. In fact, doing so can cause confusion to you and your REALTOR. Be sure that you have specifically described what you are looking for in a property and ask your REALTOR to introduce you to properties which most closely meet your criteria. Give feedback on properties that you are shown, so that your REALTOR can continue to refine the picture of what you need. If your criteria changes, communicate this to your REALTOR. For example, if you decide that a particular style of house does not fit your needs, let your REALTOR know so that houses of that style are no longer shown to you.

It is a REALTOR's responsibility to inform you of any material facts about a property which he or she knows. These facts would be things such a condition of roof, presence of wetlands on a property, a known change to a road which will impact the property, etc. It does not include information about the seller's reason for selling, who the neighbors are, etc. Your REALTOR may not know everything about the property's condition; that is why you will have a building inspection done before signing the contract to purchase.

When you have developed interest in a particular property, your REALTOR will be able to provide information about comparable sales in the area to help you determine value. Your REALTOR can arrange for you to visit the local schools, obtain information about programs available in the area and help you select the appropriate property.


3. Mortgage Pre-Approval:
You will contact a mortgage company or banking institution to understand what purchase price might be correct for you. Further understanding of your financial situation will allow the lender to issue you a "Pre-Approval" letter which stipulates that you have been approved for a mortgage up to a specific dollar value. This is a valuable asset for you during the negotiation process. If you are not familiar with the names of lenders in Greenwich, your REALTOR will be able to provide you with that information.


4. Finding the Right Property:
The search for your new home is truly a joint effort between you and your REALTOR. Be as open with your REALTOR as possible about your likes and dislikes. It is very important to tell your REALTOR what you like about each house you visit so he/she will begin to understand what you are looking for in the home you wish to buy. Between your input and your REALTOR's professional skills, the search will narrow until you ultimately find the "right" property for you.


5. Making an Offer to Purchase:
Once you have focused on one or two properties, your REALTOR will be able to provide you with market data on recently sold properties. This information will help both you and your REALTOR formulate your offer. Working with your REALTOR, you will be able to determine where you would initially like to start with your offer price. You should then develop a set of strategies, each dependent upon how the seller responds to your offer, so you do not end up "reacting" to any counter offer made by the seller.
The offer may include, but is not limited to the following:
  1. The Opening Offer Price that you are willing to pay.
  2. Financial Contingency requirements, amount of your mortgage and date by which you will receive a written commitment.
  3. The Closing Date upon which you will take ownership of the property.
  4. Inspection Contingencies (building, radon, lead paint, termite, well, septic, survey, etc.) usually termed "all physical inspections".
  5. Other Contingencies, if any, that are to be identified and included in a Contract of Sale along with dates if appropriate.
  6. Identification of the Inclusion and/or Exclusion of any "personal property" (washer/dryer, etc.).
  7. The date you will sign the contract and give 10% of the purchase price as earnest money.

This complete offer is then presented by your REALTOR to the Listing Agent for the property. The seller may respond in any one of the following manners:
  1. The seller may totally reject your offer without giving any counter offer.
  2. The seller may counter your offer with one of their own.
  3. The seller may accept your offer as it was presented.

Once a verbal agreement has been reached, a written "Offer to Purchase" is prepared by your REALTOR outlining the terms agreed to by you and the seller. This document is then transmitted to the Listing Broker and the attorneys of record.


6. Finalizing your Financing:
After an offer has been accepted by the seller the lending institution you have chosen will require an appraisal on the property to be mortgaged. The institution will send one or sometimes two appraisers to do a thorough inspection of the property to determine whether the property will qualify for the desired mortgage. Once the institution agrees to finance a particular property, they will issue a commitment letter whereby they agree to provide a certain dollar mortgage at a specific rate for a specific time and the buyer is assured the financing is in place.


7. Utilities and other details:
Your REALTOR will remind you about two weeks prior to closing that the appropriate utilities and services need to be notified in order to transfer the accounts to your name. These include, electric, gas, oil, propane, telephone and refuse. They may also include pool services, yard maintenance and more. During the same period the seller will be contacting the same providers to discontinue the same services. This transition needs to go smoothly to protect you from having to pay a "connection or hook up fee" because the service was completely terminated. Your REALTOR can help you with this, but the companies now require the new homeowner to initiate requests for service.


8. The Contract:
The seller will instruct their attorney to draw the Contract of Sale to include the terms agreed upon. Your agent will ensure that, at the same time, your attorney receives the necessary information so that he/she can begin their work and be prepared to receive and review the contract. Your attorney will review the contract from your perspective and insure that your interests are protected (such as including stipulations for delays, searching of Title, type of Title to be conveyed, cleanliness of the premises at the time of closing, etc.) The timing of this, dependent upon the complexity of the terms, should all take between five to ten days from accepted offer to signed contracts. You will normally be expected to submit an escrow check in the amount of 10% of the total purchase price (made out to the seller's attorney) with the signed contract.


9. Closing Day:
On the day of your closing, you and your REALTOR need to perform one last walk through of the premises. Together you will look to insure the property is in the condition is was when you signed the Contract of Sale. You will verify that the items to be included are present. You want to make sure the house and grounds are as specified within the contract and most important that there are no defects visible now which were previously hidden.

You (or in your absence, you power-of-attorney) will attend the closing - primarily to sign appropriate documents and deliver checks for appropriate amounts. If your situation dictates, you may actually meet with your lender immediately prior to the time of the closing to sign your mortgage papers. Between your REALTOR, your attorney and your lender you will be advised ahead of time of all the costs and fees associated with your closing.


10. Typical Home Purchase Costs:
  1. Points or loan origination fee.
  2. Adjustment of interest on loan from date of closing.
  3. Title Insurance (one-time fee required by banks).
  4. Credit check.
  5. Bank appraisal.
  6. Attorney's fee.
  7. Survey fee: If the property has not been surveyed, the lender to Title Insurance company may require a registered survey or plot plan showing the location of the dwelling(s) and the boundaries of the property, as well as easements and rights of way.
  8. Recording Fees: The buyer usually pays the fee for legally recording the new deed and mortgage.
  9. Homeowners Insurance: Proof of a current policy is necessary at closing. Adjustment costs paid to the seller at closing (where applicable)
    1. Buyer's share of pre-paid property taxes.
    2. Heating oil or gas remaining in tank(s).
    3. Association dues.
    4. Sewer service charge.
  10. Inspections made of the property (normally incurred prior to closing) which may have been performed at the request of the buyer, pest, structural, radon, lead based paint, well, septic, etc.
  11. Private Mortgage Insurance (PMI) if financing more than 80%. Tax escrow, if necessary.

Greenwich Real Estate - Selling A Home - Greenwich Homes For Sale At Inside GreenwichRealEstate.Com

SELLING A HOME:


1. Selecting a REALTOR:
Choosing a REALTOR is the first step in the home selling process. The selection of a REALTOR in a community like Greenwich is made easier by the presence of the Greenwich Multiple Listing Service. Almost every real estate agent in the community is a member of the Greenwich MLS, giving each REALTOR access to all properties listed in the MLS. You could start the search by asking your friends or your attorney to recommend a good candidate for you. Although a Real Estate company's reputation is important, your relationship will be with the Agent himself/herself. The REALTOR you choose should be a full time agent with broad experience and total knowledge of the market.


2. Preparing Your Home for Sale:
Everything in your home needs to be looked at through the "eyes" of the buyer. Your REALTOR should be able to help you with this. They will suggest things to be done to the property to ensure the highest price, such as painting (interior and exterior), removing valuable objects and "decluttering", having the windows washed, gutters cleaned and making other minor repairs that may be necessary. You should expect your Agent to be very frank with you about what your home may need to facilitate a timely sale.


3. Documents and Marketing Program:
Once you select a REALTOR you will be requested to sign a listing contract, a Greenwich MLS data input form, a State of Connecticut "Residential Property Condition Disclosure Form", and a U.S. Environmental Protection Agency Disclosure Form regarding lead based paint hazards (for properties built prior to 1978). Your Agent will review these documents with you, and if you care to seek legal advice, then do so before signing. Selling your house is disruptive and can be intrusive into your every day life, but your agent will work hard to minimize this.


4. Broker Open House:
The listing REALTOR of your property will schedule an Open House for the other REALTORS who are members of the Greenwich MLS so they may preview it. This helps REALTORS determine which of their customers might be interested in viewing your house. The Open House schedule in Greenwich is specific to certain times and sections of town allowing REALTORS to see as many Open Houses as possible in the given time frame. At the Open House the listing REALTOR will provide information, such as the listing itself and plot plans, and is available to answer questions about the properties.


5. Showing the Property:
The REALTOR will acquaint you with the various means by which a property can be shown. First, there is the installation of a keybox. This method allows the greatest access, because the only scheduling required is for the REALTOR showing the property to confirm with the homeowner that it is convenient to bring a prospective buyer over for a showing.

Somewhat more restrictive is the method by which the listing REALTOR alerts MLS members that a key to the property will be held at the listing office and a confirmed appointment would need to be made through the office.

The most restrictive method of showing is to require the listing REALTOR be present at the showing. This requires more scheduling between the homeowner, the listing REALTOR and the REALTOR who wishes to show the property to a client.


6. Considering an Offer:
When someone is interested in your property they will make an offer to purchase through their REALTOR. Your REALTOR will take you through this process. Some terms which may be included in the buyer's offer are:
  1. The offer price the buyer is willing to pay.
  2. The mortgage contingency requirements, amount of mortgage they are seeking and the date by which they will receive a written commitment removing the contingency.
  3. The closing date upon which Title and ownership of the property will be transferred to the buyer.
  4. A list of the inspection contingencies and when they will be lifted.
  5. Other contingencies (i.e. sale of home, etc.)
  6. Inclusions and/or exclusions of any "personal property" which may be a condition of the purchase.
  7. The date by which the contract will be signed and the buyer will provide 10% of the purchase price.
Once you and the buyer reach an agreement of the "terms and conditions" for the purchase, an "Offer to Purchase" is prepared by your REALTOR outlining the agreed upon terms. This document is then transmitted to the attorneys for buyer and seller.


7. The Contract Process:
The seller is responsible for having the attorney draw the Contract for Sale which will include the agreed terms and conditions. The buyer will normally be expected to submit an escrow check (made out to your attorney) with the signed contract, usually in the amount of ten percent of the total purchase price. The contract is typically a Greenwich Bar Association contract which will contain every detail and a schedule of inclusions and exclusions as agreed upon by both parties. The Seller Disclosure Form is also delivered as part of this package. After the buyers have signed the contract, it is returned to your attorney with the escrow check. Your attorney will then go over the contract with you and you will sign it.


8. Before Closing Day:
Near to the date of your closing the buyer's REALTOR and the buyer need to perform one last walk-through of the premises. Together they will ascertain that the property is in the condition it was when the Contract of Sale was signed. They will verify the items which were to be included are present. They will determine whether there are any defects visible now which were previously hidden. If any of these are found, you may need to be prepared to adjust for these costs at closing.


9. Closing Day:
You (or in your absence, your power-of-attorney) will attend the closing - primarily to sign appropriate documents and deliver checks for appropriate amounts. Between your REALTOR and your attorney you will be advised of all the costs and fees associated with your closing.


10. Costs Associated with Selling a Home:
Attorney's fee:
  1. Town of Greenwich Conveyance Tax ($2.50 per $1,000 of Sale Price). State of Connecticut Conveyance Tax ($5.00 per thousand up to $800,000 and $10.00 per thousand of $800,00).
  2. Survey Fee: If the property has not be surveyed, the Lender or Title Insurance Company may require a registered survey or plot plan showing the location of the dwelling(s) and the boundaries of the property, as well as easements and rights of way. This might fall on the seller's shoulders.
  3. Adjustment costs paid to the seller at closing (where applicable):
    1. Buyer's share of pre-paid property taxes.
    2. Heating Oil or Gas remaining in tank(s).
    3. Association Dues.
    4. Sewer Service Charge.