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As the requirements near completion, the title company or escrow agent will receive
closing instructions from the lender and begin preparing and ordering the documents
for closing. These usually consist of the warranty deed, the note, the deed of trust
or mortgage (depending on the state), the release of liens, the payoff amounts from
existing loans, proof of insurance, termite reports and the survey.
Appointments are made for the closing process, with the buyer usually closing
first. Both parties and their attorneys, if desired, will review the required
documents, along with the title insurance and sign the necessary paperwork.
In most jurisdictions, title to your home passes when the buyer receives and
accepts the signed deed.
If you want to purchase another home immediately, you will probably want to
close on the home you presently own before closing on the new home. If anything
keeps the sale from going through, you will not be obligated for two mortgages.
Generally, it is difficult to meet lenders’ qualifications on the new home until
you are released from the previous note. You may negotiate to rent the home from
the buyer for a period of time after closing, or you will need to make temporary
housing arrangements.
In some cases, funding takes place several days after closing. The lender may
require time to review and approve all the documents. At other times, immediate
distribution of the proceeds, or “table funding,” occurs. You may request in advance
that table funding be arranged.
Federal Income Taxes
The expenses and profits of buying and selling your home can substantially affect
your federal income tax liability. You should consult your tax professional about
specific filing details, and ask if any of your closing costs will reduce your
federal income tax. If you are assessed a prepayment penalty on your mortgage,
it may be included with other itemized deductions for interest on home mortgages.
The cost of home improvements should be applied to your home’s cost basis,
thereby reducing any taxable profit or capital gain.
Capital Gains
You may exclude up to $250,000 of the gain ($500,000 for married couples filing
a joint return) from the sale of a principal residence occurring after May 6, 1997.
You are not required to reinvest the sale’s proceeds in a new residence to claim
the exclusion. You must have owned and used the home as a principal residence for
a combined period of at least 2 years out of the 5 years prior to the sale. If you
have not used the home you are selling as your principal residence for 2 years, you
may be able to take a prorated amount of the exclusion under certain circumstances.
These may include a change in health, employment or military assignment.
For more details, read Internal Revenue Service Publication 523,
“Selling Your Home.” Military servicemembers should also reference Internal
Revenue Service Publication 3, “Armed Forces’ Tax Guide.”
The capital gain exclusion is allowed each time you sell a home, but not more
frequently than every 2 years or for more than $250,000 ($500,000 for married
couples filing a joint return) for each sale. Taxpayers who sell their home at a
loss have no capital gain exclusion for that sale. Consult your tax professional
for details.
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Selling A Home
Selling A Home
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