Considering Real Estate Taxes for December Closings

Your financing is approved and in place for closing. You may have even started packing for your transition. Before you set your closing date, however, keep in mind these considerations when you’re buying and selling in December.

You’ve accepted an offer on your old home. You’ve found the perfect house that will become your new home. Your financing is approved and in place for closing. You may have even started packing for your transition. Before you set your closing date, however, keep in mind these considerations — including real estate taxes and income taxes — when you’re buying and selling in December.

Real Estate Taxes

Working to ensure you’re saving the maximum amount of money when paying your property taxes is important to your wallet. And one of the best ways to decrease your property tax bill is through the homestead exemption, which you can claim on your primary property. Here’s the key to ensuring your real estate taxes are minimized through this exemption: you must inhabit that property as of January 1st to qualify.

What this means to you: if you have the choice of closing in late December versus early January, push for December. It can mean hundreds or thousands of dollars of savings, depending on your property value if you can claim residency on or before January 1st.

On the flip side, as the seller you’ll be prepaying property taxes on your sold property at closing. You likely already qualify for the homestead exemption on your current home, which means that you benefit from holding on to that home until the latest part of December possible. And remember that you can deduct that tax paid from your income taxes as well. Bonus!

Income Taxes

Consider these additional income tax implications for buying and selling in December. First, as a seller, you may be responsible for capital gains taxes on your sold property. To avoid capital gains taxes, you must have inhabited your selling property for 2 out of the last 5 years and have experienced a gain of less than $250,000 if single or $500,000 if married. If you’re wavering on the two-year mark, holding off in selling until January may help you. Additionally, selling in January instead of December will give you more time to ensure you have enough money on hand to pay your capital gains taxes ahead of next year’s filing deadline.

As a buyer, it can be beneficial to push for a December closing for income tax purposes, especially if you are a first time homebuyer. You can begin deducting property taxes and interest paid as they accrue immediately after sale. Claim all of that a couple months after your December purchase and you’ll have reduced your income tax bill.

When to Seek Help

If your buying or selling process is complicated by intricate financial arrangements in the form of multiple loans or because of very high value sales, special circumstances may apply to you and could also influence whether you decide to close in December or wait until the new year begins. Although you can conduct your own research to make a determination and your agent, mortgage broker, and title company closing team can make recommendations, it may be best during complicated situations to consult with an accountant or tax attorney as well.

Image Source: Flickr/401(K) 2012

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Tiffany Aller

Tiffany wasn't born in Texas, but she got here as fast as she could. She and her husband have gained extensive experience buying, selling, renovating and flipping homes in the DFW area. A professional freelance writer, Tiffany enjoys contributing real estate and home improvement articles to the Coldwell Banker site and working with other clients to craft content that's specially designed to generate interest while sharing valuable ideas.