Tax Implications When Selling Your Home
Getting ready to put your house on the market? You’ll need to mentally prepare yourself to spend a lot of time, work, and energy before you list it.
Why? Because there’s a lot involved when selling.
Some updates to increase the value of the home; prepare for an open house; looking for a new home; and probably wondering if you’re going to have to pay taxes on the profit or gain you make from the sale.
All of this is enough to stress anyone out! Especially the last one.
You see, many homeowners find themselves unexpectedly facing high real estate commission fees they simply didn’t budget for before their move.
They simply didn’t know the real estate tax laws and what to expect.
WHAT TYPE TAXES ARE YOU RESPONSIBLE?
Owning a home is such an amazing milestone in life. BUT selling your home can be a frustrating experience.
So, it’s important to know what type of taxes come into play.
There are three types of taxes to consider:
Capital gains tax-A tax levied upon possessions and property—including your home—that you sell for a profit (if you sell it in one year or less, you have a short-term capital gain);
Property tax-You will pay prorated taxes up until the closing date when the buyer will then take over;
Real estate transfer tax-You are responsible for paying transfer fee on your house also known as a government transfer or title fee.
Although you cannot avoid the real estate transfer tax or the property tax fee you may be able to have a capital gain exemption.
HOW CAN YOU GET A CAPITAL GAINS TAX EXEMPTION?
Some people can avoid paying a capital gains tax when they’re selling their primary home. But there are a few stipulations to qualify:
You must have lived in your home for at least two of the last five years of ownership.
Profit of the home cannot exceed $250,000 for a single filer or $500,000 for a joint/married filer (one of the spouses needs to have owned the property for at least five years with both spouses living in the house for two of the last five years.
If you don’t qualify for the above, there are other IRS considerations:
If you acquired home in a divorce you can use the time your ex spouse lived in home as their primary residence;
Death of spouse-you can use the time the deceased spouse lived in the home as long as you didn’t remarry;
If you’re in the military and were stationed at least 50 plus miles from home, you can get the two-year minimum waived.
There is so much to know before selling your home. The best thing to do to be more prepared is to contact a professional before you list it to know your tax responsibilities.
Have questions? I’m here to help!