When selling a primary residence, some sellers pay no income tax on the gain. Paying taxes on the profit of a home depends on how long you owned and lived in the home, as well as how much money was made. If you lived in the home for at least two of the five years before selling and did not convert the property to investment property, up to $250,000 of the profit is tax-free, or up to $500,000 if you are married filing jointly. If the profit exceeds the $250,000 or $500,000 limit, the excess profit could be subject to capital gain tax.
There are additional special circumstances to note such as divorce settlement, death of a spouse, military service members, etc. Having an experienced closing attorney on your side that knows the rules helps to navigate this process.
First, is to apply for homestead exemption if you moved into the home by January 1st and it’s considered your legal residence. This exemption can offer a significant break on property taxes.
Second, is to keep your closing statement for preparing your tax return.
In addition to Homestead exemptions, most counties have additional exemptions for people 65 years old and older. Not knowing about these exemptions can cost thousands of dollars when the 2021 tax bill comes out.
Since these exemptions only have to be applied for once, it’s easy to forget about them. At Origin Title and Escrow, it’s our job to help our clients save as much money as possible.
January 1st is a very important date for new homeowners. All counties in Georgia provide a significant break on property taxes for people’s primary residence if they are the owner on record as of January 1st of that year. This is called the homestead tax exemption.
In order to qualify for the exemption, a person must own and live in the property on January 1 of that year and apply for the exemption before the deadline. The deadline varies from county to county, but it is typically either April 1st or May 1st. The homestead exemption is a significant savings on property taxes.
While it’s free to file a homestead exemption, it’s not automatic and must be applied for. Most counties allow homeowners to apply for the exemption all year-round, even if it will not be applied until the next year. Once applied and qualified for, this exemption is automatically renewed each year as long as the owner continues to occupy and own the home under the original ownership.
Real estate agents enjoy working with a closing attorney who understands homestead exemption deadlines.
Each state does property taxes a little differently. Some states don’t send a property tax bill until after the year is completely over.
In Georgia, the 2018 property tax bill covers the time from January 1, 2018 through December 31, 2018. If the property sale closes before the tax bill is mailed, the seller pays the buyer the seller’s portion of the tax bill at closing. When the bill does come out, the buyer must pay the full tax bill– even if the seller’s name is still on the bill. In our office we strive to give the buyer an accurate property tax credit at closing– but it is impossible to predict tax bills.
If either party didn’t pay the correct amount at closing, they need to settle-up once the tax bill comes out. Real estate agents don’t enjoy having the property tax discussion with buyers or with sellers, especially when the tax bills are higher than they have been in the past. They will welcome an introduction to a qualified closing attorney who can make sure both parties are aware that they may owe taxes to the other party once the tax bills are out.
Reverse mortgage loans do not require an escrow account, because the borrower receives money, rather than making payments. Since conventional mortgages are usually set up to include property tax and homeowner’s insurance, how does the reverse mortgage loan holder pay for those elements? The borrower acquires and pays for insurance independently, and pays taxes directly to the tax authority.
On-time payment is essential, because if the borrower has paid property taxes late within the last three years, the lender will likely require a LESA account — a Life Expectancy Set-Aside account, which sets aside enough money to pay the property taxes every year of the remaining expected lifetime. Taxes and insurance payments must be paid on time after closing as well. Failure to pay taxes and insurance is considered in default for reverse mortgages and can result in foreclosure.
Does the LESA account really impact the borrower? It can be a big number if the borrower is younger: in 2015, the lender required a $73,000 LESA account deposit for a 62-year old, city of Decatur borrower.
Loan officers and reverse mortgage specialists enjoy working with a closing attorney who can explain the rules, requirements, jargon and singularities in reverse mortgages to homeowners.