We would like to sell our home but are concerned about tax penalties next year. What should be aware of before we sell?

Well, if you sell your primary residence, a single person can take $250,000 profit tax-free, and married couples get $500,000.

Small print: some exclusions apply!

This applies to capital gains on the sale of your principal residence. To qualify, you must have (both) lived in the home for the past two out of five years.

If you're selling a rental property that you have not lived in as your principal residence, yes, you may pay tax on capital gains. One way to avoid this is to roll your profits into another income property purchase through a 1031-tax-deferred exchange.

What type of deductions can be obtained next season if we buy our first home this year?

There are many benefits to owning your own home, both large and small. Here are some of the most common, current tax-deductible homeownership expenses:

- Mortgage interest on loans (up to $1 million) is deductible for the year in which you pay it to buy, build or improve your principal residence.

- You can deduct points paid the year you purchase your home, regardless of who pays the points (buyer or seller).

- Real estate taxes paid at closing and/or annual property tax payments can be deducted if you itemize deductions.

- If you operate a business out of your principal residence, you can deduct a portion of your mortgage interest, insurance, utilities, repairs, and depreciation for that residence.

Seller’s situation

It can be helpful for a buyer to find out where a seller is coming from before making an offer. How long have they lived in the home? Is the home a short sale? Was it a rental property? Are they relocating and need to move quickly? Will they accept a contingent offer or do they want an as-is sale?

These things can affect the timing of the purchase, what type of financing the seller will accept, how much information you will get on disclosures, and how flexible the seller will be if the buyer makes repair requests.

If you are looking for a move-in ready home an owner-occupied home may be a better choice than a long-term rental. If the home was a rental for most of it's life, usually there will be some deferred maintenance to expect, that even a well-intentioned seller may not be aware of much of it. Rentals usually will suffer more wear & tear than owner-occupied homes.

A home is a big purchase and financial commitment. A seller who will give a thorough history on the property may be more comfortable to deal with than a faceless entity who never lived in the home. Offers can be priced and worded accordingly to the benefit of both parties.

Deferred maintenance

You may be able to buy a fixer under market value and in a few months have an upgraded property. However, if you have not managed a major remodel AND have reliable contractors, be careful. Deferred maintenance homes may have unanticipated hidden problems. If you don’t have a budget to address them you may quickly lose this investment game and get stuck with an unfinished project you can’t afford.

House flipping is interesting to watch on TV, but there are many unseen pitfalls. Have a plan and research it before you get into contract. Seek advice from a real estate agent and contractor so you get a good estimate of what you will spend out of pocket and if the end result will be worthwhile. Always budget for unexpected expenses. And, remember, time is money.

Buying an older home that is habitable and functional that you plan to live in for three to five years is often the safest investment. You can update the home and follow an annual budget, take the tax deductions for an owner-occupied property, and build equity through improvements and appreciation.

Thorough inspection

Spend some money and time up front to professionally inspect your potential purchase. Don’t assume! It’s better to lose $500 in inspection fees than $50,000 in unseen repairs. Find possible issues while you still can negotiate.

Shopping for homes using a buyer’s agent is very wise if you are a young or first-time buyer. Having a third party who has seen many homes, knows the area trends and building practices, who can point out potential problems is a good person to have on your team.