Most homeowners think that selling their homes makes them free from paying taxes, but that’s not the case. There are things you must know before you go ahead and purchase a new home. First, you need to report any profit you make from the sale of your house (which is known as capital gains). Other things you need to know include tax breaks, reduced exclusions, reporting your home sale on a tax return, and how to calculate the profits from your home sale. Continue reading to learn more:
What Are Capital Gains Taxes?
Capital gain taxes are the profit you major from selling a capital asset which can include cars, real estate, and investments (stocks and bonds). When you sell any of these assets, the profit you make can attract capital gains tax.
When you sell an asset you’ve owned for more than one year, you owe long-term capital gain tax and you owe short-term capital gain tax when you sell a property you’ve owned for less than a year. You only pay capital gain tax for realized profits; this means you pay this tax only when you sell an asset for more than how much you paid for it.
The long-term capital gain tax rate is between 0%,15%, and 20% of your profit. But the tax rate for short-term capital gain is on the high side starting from 12% to 37%.
Is It Compulsory To Pay Taxes After Selling Your House?
If you sell your house and your profit is more than what you bought it for, you’ll be required to pay capital gain tax. However, there are ways to avoid paying this tax or end up paying very little.
How can you avoid paying capital gain tax? As a single house owner who has lived in a house for two of the five years before selling the house, you won’t be paying any tax on the first $250,000 of any profit you make on the home sale. If you’re married, you won’t be paying any tax on the first $500,000 of any profit you make.
These figures are the profit not income; which means you’re paying tax on the net amount you make from the sale of your house. You’re paying tax on the difference between the price you paid for the house and the price you sold it at.
NoHow to Qualify for Home Sale Tax Breaks
To qualify for home sale tax breaks, you must meet these requirements:
You must have been the owner of the home you want to sell for about two years. Anything lower than two years disqualifies you from home sale tax breaks.
The house must have been your main residence for at least two years.
You must have used this tax break to sell another property within the last two years. The tax break cannot work if you’re trying to sell different properties.
If you meet any of these criteria, you’re qualified for the tax break.
If you meet all of these requirements you may not have to pay capital tax gain on up to $250,000 of profit on your home sale if you’re single. And if you’re married and you file jointly, you can enjoy a tax break on $500,000 of profit on your home sale.
Also, if you’re looking to sell your house fast, you should sell to a trusted cash house buyer. At Austin All Cash, we help our clients close the sale of their houses fast. We’re Austin House Buyers and you can count on us to make the best offer for your house.
Contact us today for more information about our services!