Real Estate News

The Internal Revenue Service’s Wednesday guidance upended many taxpayers’ plans of paying their 2018 property taxes early to claim a federal deduction before the new tax law takes effect in January.

If you’re thinking of prepaying—or if you have already prepaid—here are a few things to keep in mind:

1. Check your tax-assessment dates

Make sure your local tax office has assessed your property for 2018. Many jurisdictions will bill taxpayers several times throughout the year. If you have received a bill due in 2018, it might make sense to pay it now if you want to claim a federal deduction. For instance, Iowa property taxes are paid semiannually and residents have received a bill due in early 2018, said Nicole Kaeding, an economist at the Tax Foundation. “Those individuals could go ahead and pay by the end of the year and it would be safe to deduct,” she said. In jurisdictions that have assessed properties but not yet sent bills, there may be a gray area. The District of Columbia, which has assessed but not yet billed taxpayers, says they may qualify for the deduction by paying before the end of this year. But it is not yet clear the IRS will agree.

2. Beware the AMT

Make sure that by prepaying your property taxes you wouldn’t become eligible to pay the alternative minimum tax. The AMT is a separate tax system originally designed to prevent people from using legal tax breaks to avoid paying all taxes that largely applies to higher-income households. If prepaying your 2018 property taxes sends your federal tax deductions soaring, you may hit the threshold that would require you to pay the AMT. Similarly, if you will already be paying the AMT, prepaying property taxes may provide little or no benefit.

3. Make sure your state and local tax bill is high enough

Try to determine whether your total state and local tax bill next year will exceed the $10,000 cap that was added to the law. If you have consistently paid less than $10,000 in state and local taxes, you will likely still be able to deduct the full amount you pay in to your state and local governments. Also note that depending on your individual tax situation, you may prefer for 2018 to take the standard deduction, which the law raised to $12,000 for individuals, $18,000 for heads of household and $24,000 for married couples filing jointly.

4. Speak with your mortgage provider

Many homeowners pay their property taxes through an escrow account set up by the mortgage provider. That way they send one monthly payment to the mortgage company, which then takes care of paying the necessary taxes. If that is your situation and you’d like to prepay your property taxes, make sure you speak with your mortgage company first so you don’t end up paying your taxes twice.

5. Talk to a professional

Finally, and most important, talk to your tax adviser. Circumstances vary by household and somebody well acquainted with your situation is probably in the best position to give you relevant advice.

Show me the money! Admit it, that’s what you’re thinking when you consider selling your house. In fact, chances are good you’ve mentally spent much of the proceeds already—on a new house you’re buying, and maybe even a nice vacation this summer. Slow down there—while selling a home can indeed bring in some sweet profits, not every dollar goes into your pocket. You also have to pay the professionals who help you unload your property. So now the question in your mind is probably: How much does it cost to sell a house? Really?

On average, home sellers pay their listing agent a commission amounting to about 6% of the price of their home (although that percentage can vary). On a $250,000 house sale, this amounts to roughly $15,000.

That might seem like a yuuuuge chunk of change, but don’t go assuming you’re getting ripped off! Here’s where that money goes, and why it’s totally worth it.

The real estate agent commission, explained

If you’re picturing your real estate agent pocketing the whole sum, think again.

“Sellers are often confused by the often-quoted ‘6% commission fee,’ and it’s because many agents don’t explain clearly why it’s being collected,” says David Nelson, a real estate professional with Re/Max Advantage Plus in Minneapolis/St. Paul.

In fact, that commission is split between the buyer’s agent‘s brokerage and the seller’s. They might split it evenly, or the seller’s agent’s side might get a bit more. From those splits, the respective brokerages take their cut—which, again, varies—and the remaining amount goes to the agents.

Remember, most agents don’t receive a salary, so that fee pays for all that time the agent spent marketing your home. It also includes costs like photographs and signage, as well as the cost to list it on the multiple listings service. And if your house doesn’t sell, the agent doesn’t get reimbursed for those costs—or paid for her time.

How much sellers pay in closing costs

While buyers tend to pay more in closing costs, sellers aren’t completely off the hook. You can expect to spend an additional 2% of your home’s price on this expense, says Keith Gumbinger, vice president at mortgage information resource HSH.com.

Closing costs tend to be fixed, including transfer taxes, escrow expenses, and notary fees. You’ll also pay at closing any outstanding property taxes, a prorated share of the water and sewage bills, and the remainder of your mortgage.

Yet you may have control over a few closing costs, says Gumbinger. If you hire a real estate attorney to oversee your side of the transaction, it’s worth shopping around to compare rates. You might also be able to avoid a $100 to $200 reissue fee for the title search if you can provide a copy of your policy.

Should I just sell my house myself to save money?

In a hot market, many sellers may think they can sell their house themselves to avoid the commission fees.

However, most people don’t realize that if you sell your house on your own, you still have to pay for the buyer’s agent’s brokerage fee.

“Since over 93% of active buyers have a real estate agent representing them, it’s the only way to attract these agents—and thus their buyers—to even consider your home,” Nelson says.

What about that cash they would still be saving by selling their home as “For Sale by Owner,” or FSBO?

Consider what your agent brings to the party:

• Marketing, signs, advertising support, and professional photography
• The time and “hassle factor” savings of not having to be present for showings, manage calls, host an open house, set up legal representation for paperwork, and conduct the negotiations
• The legal protection that comes with working with a licensed real estate agent
• The professional market knowledge that can help you wisely price the house
• Negotiating expertise that allows your agent to extract the best terms and price from the buyer
• A wider pool of potential buyers that comes with listing your home on the MLS
• Access to other agents, who have or know potential buyers. In fact, notes Nelson, many sales can happen before a home is even listed, because agents will reach out to one another.

“In the end, that ‘savings’ to list a home yourself doesn’t usually save you any money,” Nelson says. “In fact, it can cost you in terms of time, stress, and often a lower price for your home.”

You know the saying “you get what you pay for”? Well, you also earn what you save. Think long and hard about your limitations in terms of time and expertise before heading down the home-selling path solo. After all, this home sale may be one of the largest financial transactions of your life, so it’s not exactly something you should cut corners on with the hopes of saving a few bucks.