Closing on sales before or after the new year: Four issues to weigh

When deciding whether to close before or after the new year, sellers should look at their recent gains and losses, coming income changes and timeframe.

The winter holiday season can be an advantageous time to sell real estate in New York, due to the limited number of other sellers and the high level of motivation that buyers often have during this season. However, these seasonal sales can introduce the difficult question of whether to close before or after the year ends. This decision often requires careful consideration of several factors that are unique to the seller.

1. Current year sales

The outcome of any real estate sales that a person made earlier in the year may help dictate which closing date is more appropriate. People who suffered losses from sales during the current calendar year may benefit from closing prior to the new year, as this allows the profit from the latest sale to be partially or fully offset by the prior capital loss. In contrast, people who have enjoyed a profitable year may benefit from closing in the next year, when future losses could help reduce the capital gains tax.

2. Increases in income

Anticipated changes in income can also help a person decide whether it is advisable to close on a property sale before or after the calendar year ends. For example, if a person is expecting a raise, bonus or other form of additional income, she or he may want to complete the sale before the end of the year. This ensures that, if the person moves into a higher tax bracket, he or she does not have to pay a larger capital gains tax on the property sale.

3. Timing considerations

People who are concerned with completing a sale relatively quickly may benefit from aiming to close before the new year. Frequently, buyers may be interested in closing before the year ends so that they can deduct certain expenses, such as mortgage interest and real estate taxes, during the following year. After the new year begins, buyers may not approach the transaction with as much urgency.

4. Loss recovery

In cases when an unprofitable sale cannot be avoided, completing the real estate closing by the end of the calendar year can be beneficial, as it lets the seller take advantage of the tax breaks associated with the loss earlier. Waiting until the next year to close leaves a person with higher tax liability, which may be burdensome depending on the scale of the recent losses.

Identifying the ideal time to complete a property sale or other real estate transaction can be difficult, as this often requires a comprehensive look at a person's finances and long-term objectives. For this reason, most sellers can benefit from working with an attorney who has experience in real estate transactions and tax planning to find the optimal course of action.