Sell Smart in Michigan: Crack the Capital Gains Tax Code

In real estate, one of the considerations for homeowners contemplating selling their property is the capital gains tax. The capital gains tax is on the profit made from selling a property for more than its purchase price. While the capital gains tax may or may not impact your decision to downsize your home, you will want a general understanding of the capital gains tax prior to selling your home. In this blog, we will demystify capital gains tax in Michigan, using a real-world example to illustrate its application. What is Capital Gains Tax? Capital gains tax is a tax on the profit (capital gain) made from selling a capital asset, such as real estate, stocks, or bonds. The tax rate can vary based on several factors, including the length of time the asset was held before sale, the owner's income level, and state laws. For real estate, the primary focus is on the difference between the selling price and the original purchase price, considering improvements and deductibles. Federal Capital Gains Tax At the federal level, capital gains tax rates are primarily determined by how long the property was held. Short-term capital gains (on properties held for less than a year) are taxed at ordinary income tax rates. In contrast, long-term capital gains (on properties held for more than a year) benefit from reduced tax rates, ranging from 0% to 20%, depending on the seller's income bracket. Michigan State Capital Gains Tax Michigan, like many states, does not impose a separate state capital gains tax. Instead, capital gains are treated as regular income and subject to the state's income tax rate, which is currently a flat rate of 4.25% as of this writing. This simplifies the tax calculation process for homeowners in Michigan, as they only need to consider the federal capital gains tax rates and the state income tax. A Metro Detroit Example Let's consider the case of a homeowner in Metro Detroit who bought their home in 1988 for $210,000 and plans to sell their home this year. We have completed an Equity Review Report for this homeowner and we think it will sell for $765,000. Here's how to calculate the potential capital gains tax: 1. Purchase Price: $210,0002. Selling Price: $765,0003. Capital Gain: $765,000 - $210,000 = $555,000 This is a rough estimate and approximation. Each homeowner's tax situation is different and we encourage you to to consult a tax professional.  In the above example, the capital gain is approximately $555,000 but before the tax is figured, you need to consider the following: Exclusion for Primary Residence: Homeowners can exclude up to $250,000 of the capital gain from their income if single or $500,000 if married filing jointly, provided they have lived in the house for at least two of the five years preceding the sale. Improvements and Expenses: The cost of any improvements made to the property can also be added to the original purchase price, thereby reducing the capital gain. Selling expenses can be deducted as well. Assuming this was their primary residence and they meet the eligibility criteria for the exclusion, our homeowner could exclude $500,000 (if married filing jointly) from the capital gain, reducing the taxable amount significantly: Reduced Capital Gain: $555,000 - $500,000 = $55,000 Keep in mind that we have not included any improvements or selling costs which would further reduce the capital gain. In this example, the $55,000 would be subject to federal long-term capital gains tax rates, which vary based on income, and the Michigan state income tax. Conclusion The example above illustrates the importance of understanding capital gains tax when selling property in Michigan. By factoring in federal exclusions and deductions, homeowners can significantly reduce their tax liability, maximizing their profit from the sale. It's always recommended to consult with a tax professional or real estate expert to navigate these considerations effectively. In summary, while capital gains tax might seem daunting at first, a well-informed approach can help mitigate its impact, enabling homeowners to make more informed decisions about selling their property in Michigan. If you have any questions regarding the sale of your home or property, reach out to Jeff Higgins at (248) 233-6165 call/text or jeff@higginspartners.com.

Bridge Loan: The Tool to Buy and Sell at the Same Time

In the world of real estate, timing is everything. Whether you're upgrading to a larger space, downsizing, or simply seeking a change of scenery, the transition between selling your current home and purchasing a new one can be fraught with financial and logistical challenges. In fact, buying a new home before selling your current home or timing the sale and purchase is often the biggest challenge our clients face. This challenge is exacerbated in this low-inventory housing market. We have several tools we use when our clients want to a buy a new home before they sell their current home or want to seamlessly sell and buy simultaneously. One tool that we are now recommending our clients consider is the bridge loan. As a real estate expert, I want to delve into what bridge loans are, their benefits, and some of the drawbacks to consider. What is a Bridge Loan? First off, a bridge loan is a short-term financing option designed to bridge the gap between your current home's sale and the purchase of your new home. This type of loan allows homeowners to borrow up to 70-80% of their current home's value. The funds from a bridge loan can be used in two main ways: to pay off the existing mortgage and use the remaining money as a down payment for a new home, or as a second mortgage to directly finance a down payment for your next home. Each mortgage lender has their own requirements and be sure to consult a trusted mortgage loan professional. Interest payments on bridge loans are typically limited to the interest itself, with the principal due at the end of the loan term, which usually does not exceed one year. The idea is to pay off the bridge loan quickly, often with proceeds from the sale of your current home, aligning perfectly with the loan's purpose to "bridge" your financing needs temporarily. I emphasize to my clients that a bridge loan is a short-term financing strategy and not a long-term mortgage option. Advantages of a Bridge Loan 1. Flexibility in Home Buying and Selling: Bridge loans offer the flexibility to make a down payment on a new property before selling your existing home. This can be particularly advantageous in our current low-inventory, hyper-competitive housing market, where you need to act immediately to secure the home you want. 2. Immediate Access to Funds: Since bridge loans are designed for short-term financing, they are often, not always, processed more quickly than traditional mortgages. This rapid access to money means you can move forward with purchasing a new home without waiting for your current home to sell. 3. Interest-Only Payments: With a bridge loan, you're typically only required to make interest payments until the loan is paid off. I think this is one of the best features of a bridge loan. There is no free-lunch but the interest-only nature of a bridge loan is not budget-busting during the transition between selling and buying homes. Disadvantages of a Bridge Loan 1. Higher Interest Rates: Due to their short-term nature and increased risk to lenders, bridge loans come with higher interest rates compared to traditional mortgages. This means you'll pay more for the convenience and flexibility that bridge loans offer. 2. Risks of Paying Two Mortgages: To me, this is the biggest risk we see in a bridge loan. If the sale of your current home is delayed, you may find yourself in the position of paying two mortgages - both your original mortgage and the bridge loan. The key to mitigate this risk is to have a full understanding of what your house will sell for and more importantly how long it will take to sell and close on the sale of your home. 3. Short Repayment Term: The typically one-year term of a bridge loan means that you'll need to repay the loan relatively quickly. This pressure can be compounded if the sale of your current home takes longer than anticipated. If our client is considering a bridge loan we do a full analysis and pricing strategy to ensure that the home can be sold in a timeframe that meets our client’s budget and is less than 1 year. Conclusion Bridge loans can be an effective tool for buying your new home before you sell your current home.  A bridge loan paves the way between selling your current home and purchasing a new one, offering flexibility, immediate access to funds, and the convenience of making interest-only payments. However, the higher interest rates, potential for double mortgage payments, and the short repayment timeline are important factors to consider and manage. As with any financial decision, it's essential to weigh the pros and cons and consider your unique situation before proceeding with a bridge loan. Be sure to work with a real estate professional, do your homework and know how much your home will sell for and all expenses associated with a bridge loan, including how long it will take to sell your home. If all of the disadvantages and risks associated with a bridge loan are managed and mitigated you may find that the bridge loan is the ideal tool for you to buy a new home before you sell your current home stress-free. Questions about how to transition from your current home to your next home? Contact Jeff Higgins at jeff@higginspartners.com or call/text at (248) 233-6165

Beyond Zillow: The Real Secrets to Downsizing and Selling Your Home

In today's fast-paced real estate market, where every click leads to a new discovery, Zillow stands out as a titan, commanding the attention of nearly half of all real estate website traffic with its impressive 200 million monthly visitors. It's a treasure trove of over 140 million properties, turning casual browsing into a national pastime for home enthusiasts and potential buyers alike. Yet, when the stakes are high and it's time to make life-changing decisions, the glaring question arises: Can you truly rely on Zillow for the most critical financial decision of your life? The Real Estate Dilemma: Downsizing in a Seller's Market Countless homeowners face the daunting prospect of downsizing in today's market—a market characterized by its alarmingly low inventory and sky-high prices. The thought of leaving a beloved family home for a more manageable space sends shivers down the spine of many, sparking a mix of fear and frustration. But even in these turbulent times, the real challenge emerges: finding a new home that doesn't just fit your lifestyle but also aligns with your financial goals.  A Tale of Transformation: The Birmingham Breakthrough Consider the story of a Birmingham couple, eager to transition from their family home to a more suitable living space—a condo or ranch that mirrors their current and future needs. Their journey from apprehension to action underscores a common predicament: the fear of not fetching enough from their current home to fund their next chapter.  In a sea of uncertainty, enter the Equity Review Report, our in-depth analysis not only shows the potential sale price in today's market but also your home's true equity. The facts? They had more than enough home equity to turn their downsizing dream into reality. However, a shadow loomed over their optimism: the infamous Zestimate. Falling short by a staggering 30%, the online Zestimate nearly derailed their plans. The Sold Solution: Revolutionizing Home Selling Faced with Zillow's limitations, we deployed The Sold Solution—our proprietary home-selling system. Our custom strategy, featuring a "Coming Soon" marketing blitz, exclusive neighborhood preview, a Mega Open House, and a digital marketing campaign, redefined the selling process. The outcome was nothing short of spectacular: a sale that exceeded the Zestimate by an astonishing $200,000.  Beyond Zillow: Making Informed Decisions When it comes to the value of your home, Zillow's Zestimate might not just be off—it could be costing you dearly. In a decision as big as selling your home, precision is paramount. The allure of convenience should never eclipse the need for accuracy. If you're contemplating https://higginspartners.com/sell-my-home5-1 or simply curious about its true value, avoid reliance on automated estimates. Consult the expertise of real estate professionals equipped to provide you with a precise, data-driven valuation of your home. In a market where every dollar counts, make informed decisions that pave the way for your financial success and peace of mind.  In the journey toward selling your home, knowledge is not just power—it's profit.

Top 5 Reasons Why You Should Sell This Year

You thought about it for awhile but this may be the year. It's an exciting time to consider the possibilities that downsizing can bring, and there are compelling reasons why this year is the prime time to put your home on the market. 1. High Demand in a Seller’s MarketThis is the year to capitalize on the high demand for homes in areas like Bloomfield Hills, Birmingham, Beverly Hills, Rochester, Rochester Hills, Oakland Twp and Troy. Homebuyers are looking for homes that are well-located with top-ranked schools. With a market leaning favorably towards sellers, you have a unique opportunity to benefit from strong offers and favorable terms. The current market dynamics suggest that waiting could mean missing out on maximizing your home’s value. Seize the opportunity to make the most of this seller's market and maximize your home value. 2. Advantage in a Low Inventory MarketWhile low inventory can be a challenge for buyers, it's a golden opportunity for sellers like you. Your home in Birmingha, Beverly Hills, Bloomfield Hills, Troy, Rochester Hills and Oakland Township stands out in a market where choices are limited, attracting more attention and potentially higher offers. This year, your home could be the sought-after gem in a market hungry for quality homes. Don't miss the chance to benefit from this unique market situation. 3. Ideal Timing for Upgrades and RenovationsIf you've recently upgraded or renovated your home, now is the perfect time to put it on the market. In this real estate market, home buyers are craving move-in ready hoems. These enhancements not only make your home more appealing to potential buyers but also can significantly increase its market value. Presenting a home that's move-in ready and aesthetically pleasing can give you a distinct edge in this year’s market. 4. Strong Community AppealThe vibrant communities of Birmingham, Beverly Hills, Rochester, Bloomfield Hills, Troy and Oakland Township and their surroundings are in high demand. Their rich culture, strong community ties, and unique local spirit are exactly what today’s buyers are looking for. By selling this year, you can capitalize on the desirability of living in these sought-after communities, making your home a highly attractive option for buyers seeking a community with a strong sense of belonging. 5. Capitalize on Economic OpportunitiesDespite the uncertainties of an election year and a fluctuating economy, 2024 presents unique financial opportunities for sellers. With potential shifts in market dynamics and economic policies, acting now could be more advantageous than waiting. Selling your home this year allows you to leverage the current economic landscape to your benefit, setting a strong foundation for your next chapter. As we navigate the nuances of this dynamic market, having a knowledgeable partner is key. At Higgins Partners, brokered by Real Broker, LLC, we are dedicated to guiding you through every step of the selling process. Understanding your home’s current value and market position is crucial, and we are here to provide you with an Equity Review Report, a comprehensive home valuation.  Contact Jeff Higgins today to explore the potential of selling your home this year.