If you’re selling your home, then you must be aware of the tax implications. You might be able to avoid paying capital gains taxes if you’re selling a primary residence because of federal exemptions. However, if you’re selling an investment asset or you’re selling your home at a higher value, be expecting to pay capital gains taxes.
This article will teach you how to avoid paying taxes on home sales. Continue reading to learn more:
How taxes work when you sell a home
After selling your home, you may be required to pay capital gains taxes on the profit. The profit on your house is the money you made after subtracting the sales price from the purchase price. However, if you sell your house for lower than you bought it, then you’re not required to pay any capital gains taxes.
4 ways to avoid taxes on a home sale
Here’s how you can avoid paying taxes after selling your house or any other real estate property:
- Live in the house for two years
One of the ways to avoid paying taxes after selling your house is to have lived in that house for at least two years or five years since you bought the house. If the house is your main residence, you may skip tax on any profit you make up to $250,000 (if you’re single) and if you’re a couple, you may skip taxes on profit up to $500,000.
Some homeowners leverage this opportunity by making a home their primary residence for two years, then renting it out for three years before selling it, and finally, before the five-year period elapses.
- Move due to military service
Members of the military move a lot; they move to wherever they’re assigned to and they do that within a short period. Hence, this makes it hard for military homeowners to qualify for the “two in five” exemption rule. But there’s an exemption for military homeowners; they can suspend the five-year test for up to 10 years.
LTo be eligible for this, you must be transferred to a station at least 50 miles from your home for more than 90 days or more. This way, qualified homeowners can sell their homes at a later time and still meet the exemption rule if they’ve lived for at least two years in their homes.
- Installment sale
You could easily close your real estate transaction in one day but some sellers allow the buyer to pay for the house in installments. This is a strategy that sellers used to spread out tax gains over multiple tax years. By collecting payment in installments, you can reduce the tax impact as against when you get paid at once.
- Keep the receipts for your home improvements
The cost basis of your home included everything you paid to buy the home and make renovations or improvements in the home. When you have a higher cost basis, you may not be required to pay a higher capital gains tax. So, renovations such as new windows, landscaping, new driveways, and air conditioning installs are things that could reduce your capital gains tax. This is why you must keep the receipts for all these things for future reference.
Conclusion
There are different ways to avoid paying taxes when selling an investment property. Fail to leverage them and you’ll be remitting a large chunk of your profit to the government. You can talk to a tax expert for more advice. In the same vein, if you want to sell your house fast and make more profit for your home, you’re better off selling to a cash house buyer. At Austin All Cash, we buy houses at the best prices; we make the best offers and make payment as soon as you accept our offer. We’re Austin House Buyers and we’re sure to deliver on our promises of swift payment and a hassle-free house closing process.
Contact us for more information about our services!