Capital Gains and Buying a Home Out of State

What are capital gains?

Capital gains are the profits you make when you sell a stock, real estate or other taxable assets that increased in value while you owned it. The capital gains tax is based on that profit. The long-term capital gains tax rate is typically zero, 15 or 20 percent, depending on your tax bracket. Capital gains taxes apply to the sale of stocks, real estate, mutual funds, and other capital assets. The tax is based on the profit you made or the price you sold it for minus the price you paid, and how long you held onto the asset.

The long-term capital gains tax rate, for assets held for more than one year, depends upon your taxable income. Short-term capital gains rates are higher and are based on your income tax bracket. A capital gains tax is a tax you pay on the profit made from selling an investment.

You don’t have to pay capital gains tax until you sell your investment. The tax paid covers the amount of profit — the capital gain — you made between the purchase price and sale price of the stock, real estate or other assets. When you sell, your gain (or loss) is referred to as “realized.” 

How much you pay in taxes depends in part upon whether you made a short-term or long-term capital gain on your investment, and each is taxed in different ways.

Short-term capital gains are taxed as ordinary income, such as the income tax you pay on your salary, at your standard federal income tax rate. This tends to be a higher rate than for long-term capital gains taxes, which are based on defined tax brackets that are adjusted each year for inflation.

Capital gains and losses are calculated by subtracting the amount you paid for an asset from the amount you sold it for. If the selling price was lower than what you had paid for the asset originally, then it is a capital loss. You can then use this amount to calculate your capital gains tax.

Buying a house out of state

Buying real estate is stressful no matter where you’re purchasing property, especially as a first-time homebuyer. 

Typically, you won’t have the luxury of being able to spend hours touring open houses. You can’t pop by to see the neighborhood at midnight. And you very likely have no idea how hellish the daily commute for your new job really is. Understandably, you might feel that you’re rolling the dice on a new home or even your first home—and setting yourself up for buyer’s remorse.

• Do your research—and then do some more

You should always do loads of real estate research before purchasing a home, regardless of whether it’s 30 miles away in a different state or 3,000. But digging through the internet becomes extremely important when you’re buying from afar.

Of course, you’re going to have a real estate agent to help you find the right home (more on that later). But don’t just count on that. Be your own advocate, fire up Google, see what you can learn—and give yourself as much lead time as possible.

• Be picky when choosing a real estate agent

When you’re relocating, you need to rely on your agent to be your eyes and ears. So it’s imperative to find someone you trust to have your best interests at heart.

To find the right agent: Start with personal referrals, and then vet anybody you’re considering, Mulholland says. Look for the CRS (Certified Residential Specialist) or CRP (Certified Relocation Professional) designations.

You can use a real estate site to uncover more info about how long the agents have been at the job, their sales volume, the areas they specialize in, and client reviews.

•  Consider a relocation specialist when buying a house in another state

If you can’t find an agent with a CRP designation (or even if you can), consider reaching out to a relocation specialist. Relocation specialists don’t just work for big companies. A specialist can help you with nearly all aspects of your move (aside from actually negotiating your home purchase). They can hook you up with the right agent to start your home search, or connect you with reputable movers, a trusted title company, a home inspection company, or an expert on the local school system. Best of all? It’s free. These professionals make their money from vendor referrals, not by charging clients. 

Capital gains and buying a home out of state can get a bit tricky but understanding your options and having a great real estate agent and broker on your side can really help you make sense of the entire process and make sure you're doing everything right. Contact me below at any time. 

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