Tax Tips for Home Sellers

When it comes to taxes, you’d think the Internal Revenue Service would keep all of the money-saving secrets hidden away in a locked vault. After all, that’s the government’s income. But the IRS is actually quite forthright in giving away tips for saving. If you’ve got a house on the market or have recently sold one, here’s what you need to know to circumvent overpaying.

The gain exclusion

If you’re selling a main home, one that you’ve owned and lived in for at least two out of the previous five years, you might not need to report any profit from the sale. The IRS allows you to make up to $250,000 in profit on your main residence without having to pay tax on it if you’re filing individually. The limit for joint filers is $500,000. Keep in mind that you can claim this exclusion only every two years.

Taxable gains

You figure out your profit — what the IRS calls “gain” — by taking the selling price you received and subtracting the amount you bought the house for, any closing expenses and the cost of capital improvements you made while living there. If the result comes in below the IRS’ limits, you probably won’t have to report the sale.

Keep track of those improvements

Since a key element of figuring out the amount of your gain is capital improvements, you should keep good records of remodeling or renovations as you do them. That way, when it comes time to sell, you’ll be able to accurately calculate any gains that are excludable.

If you should sell your main home for a loss, you’re out of luck at tax time: The difference between what you sank into your house and what you got when you sold it can’t be deducted from your taxes as a loss.

When to report a sale

If the profit you make on selling your primary home is above the IRS’ limits, you’re required to report it. If you have more than one home and are selling your main residence, you can opt not to take the exclusion. You might do that if you plan to sell another house within two years and you want to claim the exclusion for that later sale. In that case, you would need to report the sale of the first home. The same applies if you received a Form 1099-S, Proceeds From Real Estate Transactions.

First-time home sellers

If you received the first-time homebuyer credit when you purchased your home, there may be a few considerations come tax time. If within three years of buying the home you were no longer using it as your primary residence, you will be required to repay the credit in full on the income tax for the year of sale using a Form 5405.

Still have questions? Try consulting Publication 523, the IRS guide to selling a home. If a move is on the horizon, don’t forget to provide an updated address to the IRS by filing a Form 8822, as well as alerting the post office and your financial institution.

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Best Money Moves for April

As winter melts away and spring begins, April can be the time to renew your financial life. The tax season is nearly over, so you can finally say goodbye to 2014 and focus on just this year’s finances. Here are some ways to reassess your situation and spring into action:

Step up your budgeting

It’s been three months since you made your New Year’s resolutions, so consider updating your money goals. Look at which online or mobile budgeting apps work for you.

While apps may help you budget, “it’s really about how you spend money,” says Dana Twight, a financial advisor and owner of Twight Financial Education in Seattle. She suggests referring to these as “spending plans” rather than “budgets.”

“A lot of personal finance is about trade-offs and where you place the gratification on your spending plan,” she adds. If you spend a lot more than you need to, consider setting up an automatic savings plan.

Reflect on your tax situation

While your tax-filing experience remains fresh, determine how to be better prepared for next year. If you don’t keep track of receipts well, use mobile apps like Shoeboxed or Proximiant to digitize and sort them. This can help cut down on paperwork and avoid misplaced documents.

Also focus on the benefits of filing earlier next year. If you’re owed a refund, you can get it sooner. Alternatively, if you owe taxes, filling out your return in January or February can give you more time to come up with what you have to pay by April 15. Either way, you get to plan more accurately for the first few months of next year.

Apart from the stress of facing a last-minute race to the deadline, there’s another downside to waiting.

“If you’re focused on 2014 until April, then you’re three months behind for your 2015 taxes,” Twight says.

Look at creative debt reduction

After finishing with your taxes, consider using any spare cash you may have — including any refund you may get — to reduce any student loans or credit card balances. This can be tough after forking over money to tax collectors, but remember that you’ll be better off later.

If you’re looking to consolidate debt or reduce what you pay in interest, one option is to find a good balance-transfer credit card. Some cards offer 0% introductory rates for transferred balances, meaning that you avoid paying interest on it for that initial period.

Another alternative to reduce debt may be borrowing from your 401(k) retirement plan at work. According to a study by the Employee Benefit Research Institute, 87% of participants in these plans could potentially borrow, but few do.

If your plan allows loans, you can borrow 50% of your contributions, or up to $50,000, usually for as long as five years, according to Internal Revenue Service rules. Interest rates tend to be low and fixed, which often beats most credit cards.

“Your 401(k) is your own bank, if you think about it,” says Rob Riedl, director of wealth management at Endowment Wealth Management in Appleton, Wisconsin. Since you’re borrowing from your account, the interest goes back into it along with the principal payment.

This strategy can make sense for those with manageable debt, a healthy 401(k) balance and good payment habits. But there can be some risks. If you leave your job, you may have just 90 days to repay the debt. Plus, you’re taking capital from your retirement fund’s investments, albeit temporarily, which will reduce the returns generated by the account.

From reviewing budgeting apps to consolidating debts, make April the month that you lift yourself out of passive money-management strategies. By taking a more active approach, you can get better control of your finances and help ensure a brighter future.

Spencer Tierney is a staff writer covering personal finance for NerdWallet . Follow him on Twitter @SpencerNerd and on Google+ .

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Illustration by Dora Pintek.

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4 Things to Do Before Buying a Home

As exciting as it is to buy a home, the lead-up can be a dizzying experience, especially for first-time buyers. But don’t fret. Breaking down the process into smaller steps can help ease your anxieties. Here’s a look at the kinds of questions you’ll want to ask yourself, as well as a few other practical tips.

Judge readiness for responsibility

Although the thought of homeownership is generally a pleasant one, the reality can be much more stressful. That’s why it’s crucial to ask yourself whether you’re really ready for the hassles of buying and owning a home. Gone will be the days when you could simply call the landlord to fix a leaky faucet. Those chores will become your responsibility once you own your castle.

You’ll also want to think about how long you plan on living in the home you’re interested in, which will determine whether you want a fixed- or adjustable-rate mortgage. The latter typically offers a lower interest cost if you plan to sell in a few years.

Determine what you can afford

Figuring out how much home you can afford is one of the most important steps to take. To start off, think about your down payment, as well as the transaction costs. Although experts recommend having 20% of the price for a down payment, you may be able to put down as little as 3%, assuming your credit score is good and you’re willing to accept a higher interest rate and pay for private mortgage insurance, or PMI. To give you a better sense of what you might owe, consider that the median sales price of an existing home was about $200,000 in February 2015. So 20% down amounts to $40,000.

Don’t forget the transaction costs, which can amount to 5% of the price, to cover things such as appraisal, title search and lawyer’s fees. When coming up with a homeownership budget, factor in the monthly mortgage payment, maintenance costs and energy bills.

Clean up your credit

If you’re applying for a mortgage, you’ll want to clean up your credit to get the best possible interest rate on your loan. To lock in the best ones, shoot for a credit score of 700 or above. Over the course of a 30-year mortgage, higher rates stemming from a low rating when you borrowed can cost you thousands of extra dollars.

For starters, reduce your debt as much as possible. That includes slashing your credit card debt as well as any remaining student loans. To see what else needs fixing, order a copy of your credit report.

Stick with your current job

Financial planners agree that people should spend 28% or less of their gross monthly income on housing payments. The key to that, of course, is having a job. If you’re in between work, lenders are likely to view you as a greater risk when it comes to making mortgage payments. As such, the months leading up to purchasing a home are definitely not the time to make a sudden job or career change.

There’s little denying that the process of buying a home can be stressful. In fact, that may serve as good preparation for some of the hassles related to actually owning a home. In both cases, though, the benefits of homeownership tend to outweigh the occasional headaches.

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SEC Regulation A+ Opens Doors to ‘IPO Lite’ Option for Businesses

On Wednesday, small businesses got a new way to raise millions of dollars in investments without going public.

The U.S. Securities and Exchange Commission approved changes to a little-used regulation that will now let companies sell up to $50 million in securities to outside investors every year.

“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” SEC Chair Mary Jo White said. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

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Government Considering Crackdown on Predatory Loans

A sweeping new set of federal rules cracking down on unfair payday loans and other forms of predatory lending may be on the way.

The Consumer Finance Protection Bureau on Thursday announced it is considering regulations that would end “payday debt traps” by requiring lenders to make sure consumers can repay their loans and restricting them from collecting on loans in ways that tend to rack up more debt.

“Today we are taking an important step toward ending the debt traps that plague millions of consumers across the country,” CFPB Director Richard Cordray said in a news release. “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay. The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans. These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.”

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Does a $100 Bonus Make the Chase Freedom a Good Rewards Card?

Finding a cash-back credit card that offers a signup bonus can be tough. One popular cash back card that provides a sign-on promotion is the Chase Freedom®. You’ll get a $100 Bonus after spending $500 on purchases in your first 3 months from account opening.

But is this a good reason to get the Chase Freedom®? The Nerds explain below.

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What the Chase Freedom® brings to the table

The Chase Freedom® provides a lot of ongoing value to users, in addition to its generous signup bonus. You’ll earn 5% cash back in rotating quarterly bonus categories (up to $1,500 spent per quarter) and unlimited 1% cash back on all other purchases.

Historically, 5% bonus categories have included popular retailers like restaurants, grocery stores, gas stations, Starbucks and more. As a result, nearly every type of shopper will have the opportunity to earn extra rewards throughout the year with the Chase Freedom®.

Nerd tip : In order to get the bonus 5% cash back, you’ll have to go online every quarter and opt in to the new categories. Set calendar reminders so that you don’t forget to take this extra step.

Also, the Chase Freedom® charges an annual fee of $0, which makes it a good card to hold onto over the long haul.

Other cash back cards with a signup bonus

If getting a cash-back card with a signup bonus is important to you, the Chase Freedom® isn’t the only game in town. Here are two other cash-back cards that provide a little green after you sign on the dotted line:

The Capital One® Quicksilver® Cash Rewards Credit Card

The Capital One® Quicksilver® Cash Rewards Credit Card is a good alternative for people who aren’t interested in managing rotating quarterly bonus categories. With it, you’ll earn 1.5% cash back on all of your purchases. There’s no limit to the cash back you can earn, and rewards are redeemable in any amount.

As far as the signup bonus goes, the Capital One® Quicksilver® Cash Rewards Credit Card delivers: One-time $100 bonus after you spend $500 on purchases within the first 3 months. Also, it charges an annual fee of $0 and no foreign transaction fees.

The Blue Cash Everyday® Card from American Express

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Heavy gas and grocery spenders should definitely keep the Blue Cash Everyday® Card from American Express on their radars. This card earns 3% cash back at supermarkets (up to $6,000 spent per year), 2% cash back at gas stations and select department stores, and 1% cash back on all other purchases. This is a very high rewards rate for a card that charges an annual fee of $0, so you could be making a killing on your everyday spending.

And don’t forget about the signup bonus: Get $100 back after you spend $1,000 in purchases on your new Card in your first 3 months. You will receive $100 back in the form of a statement credit. All in all, the Blue Cash Everyday® Card from American Express is a great choice for foodies, families, and fashionistas.

Should you get the Chase Freedom®?

Getting the Chase Freedom® (or any card) just because it offers a signup bonus probably isn’t wise. Think of a signup bonus as a feature that adds extra value to a card, as opposed to the feature to exclusively consider. Other attributes – like the value and accessibility of ongoing rewards, fees, etc. – are more important factors for most people to use in the decision-making process.

With that being said, the Chase Freedom® is a very good cash-back card. The Nerds encourage you to apply if your spending aligns with its bonus categories and you’re interested in having a new opportunity to maximize your rewards every quarter. Otherwise, continue to explore your cash-back options – there’s undoubtedly a card out there that will meet your needs.

Lindsay Konsko is a staff writer covering credit cards and consumer credit for NerdWallet . Follow her on Twitter @lkonsko and on Google+ .

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Capital One Quicksilver Rewards Card Gives 50% More Cash

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