Ask Phyllis is a blog series of frequently asked real estate questions. Have a question about real estate? Email us here
My parents moved out of state two years ago and converted their home to a rental. To avoid capital gains tax, my accountant thinks my parents should sell since it was their primary residence for at least 2 of the last 5 years from the (anticipated) date of selling. My question to you is how long does it take once an offer is accepted until closing?
It is my understanding that you and your accountant are correct in believing that your parents will meet the IRS rule for excluding some of the capital gain on the sale of their (former) residence. Be certain to ask your accountant if there are additional tax ramifications which need to be addressed as the home was also used as a rental.
I am not certain if you are selling the home with the tenant in place or if you will be providing them with 60 day notice to vacate. Depending on whether the tenant remains in place will determine if you are willing/able to make some cosmetic improvements in order to sell for the highest possible price. The answers will help you complete your timeline.
Let’s assume this likely scenario:
You list the home on January 15th; your Realtor® hosts both a Broker’s Open House and Open House to the public. You have several offers and open escrow on January 26th. As the buyer is obtaining a loan there is a financing contingency (if they are unable to qualify for a loan, their deposit is refunded). Most reputable lenders can close within 30-40 days from the date escrow is opened. Sadly, some lenders are incompetent which can add weeks to your timeline.
Unfortunately in some instances, the buyer may perform a property inspection and then decide not to proceed with the purchase. Your Realtor® would then have to sell your home to another buyer and start the process over.
While you should be able to complete the process (list, open escrow, close escrow) within 60 days, this can be a tight timeline. Unfortunately many things can go wrong during the escrow process and my advice is to list sooner rather than later – anything less than six months is certainly doable, but there are just too many variables which could cause your parents to lose their capital gain exclusion.