Dear Phyllis,
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. Particularly as 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?
Jerri
Dear Jerri,
Saving on capital gains tax is important. 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 gains on the sale of their (former) residence. 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 a sixty 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 a public Open House. You have several offers and open escrow on January 26th. As the buyer is obtaining a loan there is a financing contingency. Their deposit would be refunded if they are unable to obtain a loan. 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.
