In some situations you’ll consider purchasing real estate that you don’t intend to own for very long because you anticipate that you’ll be able to purchase a larger house after several years. Use the considerations below to purchase real estate for the short term without getting yourself into financial trouble.
Always consult with a tax specialist regarding the rules regarding how long you have to live in your home in order to exclude from taxation amounts up to the cost of the home. Currently, you’ll have to live in your home for 24 months in order to take advantage of the tax exemption. [adsenseyu1]
For instance, if you bought a home with your spouse for $350,000 and lived in it as your primary residence for 24 months and then sold it for $350,000 you would not owe any taxes on the sale of your home. The 24-month requirement can be met over the course of five years and doesn’t have to be 24 consecutive months.
You should not purchase a starter home assuming that you’ll qualify for an exception to the 24-month rule in the event you see something better. While there are a few exceptions to the 24-month rule that will allow you to avoid taxation if you sell your main home sooner such as in the event of natural disasters, or a job change, or because of some medical circumstances, they’re not a sure thing.
When it comes to capital gains taxes related to the profit from the sale of your home, you should be aware that there are short-term and long-term capital gains taxes. If you own your home for less than a year, it’s likely that you’ll pay short-term capital gains taxes on the profits you get from your home.
The losses on real estate cannot be written off so that you should try to get a good deal on your purchase price to better the odds that you’ll make money on the sale of your home, especially if you’re planning not to be in the home for very long which will allow less time for a specific market’s recovery.
While you can’t control the real estate market, you should always examine the real estate trends for a specific area in which you’re considering buying real estate including forecasts for that area in order to help you determine how the real estate market will be when you sell a property in a few years.
If you’re purchasing a starter home you should try to purchase a home with at least three bedrooms because homes with three bedrooms sell faster and usually are able to command more money than homes that have only two bedrooms. A three-bedroom starter home will also likely better meet your space needs in the event circumstances end up that you want to stay in the home for a longer period of time.
Purchasing real estate for the short term in the form of a starter home can work out well if you pay attention to various factors that affect short-term real estate ownership. Use the suggestions above to begin a list of priorities for your short-term real estate purchase.