Selling Your Home? What to Consider (Before You Pop the Champagne)

Selling a home can be an emotional roller coaster. It’s like sending your firstborn off to college: a mix of pride, panic, and the sudden urge to repaint everything. But beyond cosmetic touch-ups and staging, there are critical financial and logistical factors to weigh before you hand over the keys. Let’s break down what you need to consider, without making it sound like a tax code seminar.

Know Your Cost Basis

Understanding your cost basis is the starting point for calculating potential gains (or losses) on the sale of your home. It’s not as simple as what you paid for the house, but it's a crucial piece of knowledge that can empower you in selling.

• Purchased the home? Your basis includes the purchase price plus closing costs and qualifying capital improvements.

• Inherited the home? The cost basis generally steps up to the home’s fair market value on the decedent’s date of death.

• Gifted or divorce transfer? You may inherit the giver’s cost basis, but watch out for those tricky “double basis” rules.

• Home improvements? Major upgrades like remodeling or solar panel installations increase your basis. However, if you snagged an energy tax credit, adjust downward.

• Repairs? Regular repairs (like fixing that squeaky door) don’t count—unless they’re part of a major restoration project.

  
  

Think About the Net Proceeds

Before you start daydreaming about sipping margaritas on your next patio, it's important to calculate your net proceeds. Subtracting closing costs, any remaining mortgage, and moving expenses from the sale price gives you a clear picture of your financial situation, making you feel financially savvy and prepared for your next adventure.

Paperwork Parade and Professional Helpers

Gather your essential documents: the deed, title, tax bills, utility records, rental agreements (if applicable), and evidence of those snazzy capital improvements. Line up the pros, like a real estate agent, attorney, appraiser, and inspector. If you’re a DIY enthusiast considering “For Sale By Owner,” weigh the potential savings against possible headaches. Selling a home yourself is like cutting your own hair—sometimes it works, but sometimes it’s a disaster you’ll regret at every family gathering.

Inspection and Repairs (The Joy of Surprises)

A pre-listing inspection can reveal hidden issues like leaky roofs or foundation cracks. Address them proactively to avoid scaring off buyers. Remember, most buyers would rather move into a place where they only have to fix a questionable paint color, not a burst pipe.

To Renovate or Not to Renovate?

While updating your home can add appeal, it’s not always worth the cost. That high-end kitchen remodel may wow you, but buyers might not share your love for quartz countertops and Italian faucets. Sometimes, adjusting your price is a more competitive (and cheaper) move than a full renovation. Choose wisely—or at least consult with your agent before installing that gold-plated sink.

Selling with Tenants?

If renters occupy your home, check the lease terms. Give them appropriate notice and consider negotiating an early move-out with a financial incentive. No one likes surprises, least of all tenants, and happy tenants can help show your property in its best light.

Tax Matters: Capital Gains, Exclusions, and Reporting

The taxman doesn’t care if you’re selling to upgrade, downsize, or embrace #VanLife. If you sell your primary residence, you may exclude up to $250,000 of capital gains ($500,000 if married filing jointly)—provided you meet the ownership and use tests (living there for at least two of the past five years).

• Did you rent the home or claim a home office deduction? You’ll need to adjust your basis for depreciation and recapture depreciation at sale, potentially taxed at 25% (plus a possible 3.8% Net Investment Income Tax).

• Selling to family? You might trigger gift tax issues if you sell below fair market value to your child (out of love or guilt). Watch those imputed interest rates if you’re financing the deal yourself.

  
  

Don’t forget to report the sale on your tax return if you don’t qualify for full exclusion or receive a Form 1099-S from the closing agent. And yes, even if you don’t make a dime on the sale, the IRS likes to know what you’re up to.

Plan for Life After the Sale

Once the sale closes, it's important to plan for life after the sale. Contact your mortgage lender and escrow company to confirm the mortgage is paid off, notify your homeowners insurance provider to cancel or transfer coverage, and update your records. This proactive approach will make you feel organized and ready for the next step in your journey.

Final Thoughts

Selling your home is much more than scrubbing the grout and fluffing pillows for open houses. From tax considerations to tenant negotiations, it pays to plan ahead. So, before diving into Zillow’s “What’s My Home Worth?” calculator or dreaming about your next kitchen remodel, pause and think about your cost basis, net proceeds, and potential tax impact.

Selling your home may be stressful, but with a solid plan (and maybe a glass of wine), you’ll be better prepared for a smooth transition—hopefully with more money in your pocket.

WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen. 

Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.