Did you know that length that you’ve owned your home matters for tax purposes? This is a crucial part of selling a house that some people are not aware of. It is important to understand the cost involved in selling a home before you go to do so.
The taxes on selling a house can seem irrational. Keep reading this guide so that you can learn why they are needed and how to avoid some of the more painful ones. We are breaking down what the taxes are and if they can be avoided.
Taxes and Selling a House
So what are the taxes on selling a house? When you make money, the IRS takes out taxes. This is no different when selling a home.
However, there are some exceptions that will allow you to avoid the taxes on a home sale. This relies heavily on how much the home you are selling sells for and if you are married or single.
What Are Capital Gains Taxes?
The taxes on selling a house are called capital gains taxes. These types of taxes do not just apply to homes but also to investments, cars, boats, and other types of real estate. The IRS determines how much you owe in capital gains taxes by calculating the difference between what you paid for an asset and how much you end up selling that same asset for.
If you hope to sell your property as is you should take capital gains taxes into consideration. What you do prior to selling your house could change how much you owe in taxes to the IRS upon making that sale.
How to Avoid Taxes on a House Sale
The good news for home sellers is that the IRS allows a tax break for capital gains on real estate. However, this tax break does not apply to every real estate sale, so you must be careful when you go to sell your home. You can get this tax break if you’ve owned your house for at least two of the past five years as well as used it as your primary residence for two of the past five years.
The tax break you get does depend on if you are single or married. The capital gains real estate tax break is as follows:
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Exclude up to $250,000 of capital gains on real estate if you’re single.
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Exclude up to $500,000 of capital gains on real estate if you’re married and filing taxes jointly.
Paying taxes on your home really depends on the price point of the sale and what you bought it for.
Know the Taxes on Selling a House
Now that you know the ins and outs of taxes on selling a house, it is time to keep or sell your property. If you haven’t lived in your house long enough, then consider holding off on your move or paying the price.
Always do your research before buying or selling a home. These are huge purchases and could leave an unexpected dent in your financial future. If you enjoyed this article then be sure to check out our blog for other tax and homeowner tips.
