How Does Selling A House Affect Your Taxes?
If you're considering selling your home, it's essential to understand how the sale will affect your taxes.
Here we'll outline some key things you need to know to make the best decisions for your situation.
Remember that tax laws are subject to change, so always consult with an expert to get up-to-date information.
For this article, I will discuss how selling a house affects your taxes.
Now, this can be a little confusing for some people, so I will try and break it down as simply as possible. Taxes are something that everyone has to deal with, and understanding how they work when it comes to real estate can save you a lot of money.
The most common question a first-time house seller asks is, "Do I have to pay taxes when I sell my house?"
Now that your house is on the market and offers are starting to come in. You realize that you will be getting more than what you paid for your home when you first bought it. You might be wondering if you will owe the IRS taxes after the house is sold.
The answer is maybe. There is a tax loophole called home sale gain exclusion or the primary residence exclusion. This means that it allows the home seller to file a joint tax return excluding as much as $500,000 in capital gains tax. Or for those single tax filers, as much as $250,000 upon selling the primary residence.
For the home seller to qualify, the house for sale must be the primary residence for at least two years within the five years from the date the house was bought. The home must also be owned by the seller for the last five years preceding the sale. The distinction must be made because residence and ownership do not necessarily happen simultaneously.
Also, the tax exclusion must not have been claimed on another home within two years before the sale.
Now, what does this mean? Let's say you and your house bought a home for $250,000 8 years ago. This would mean you would not have to pay any capital gains tax unless your net proceeds exceed $750,000.
If you are considering selling your home soon, keep these tax implications in mind. Work with a qualified accountant or real estate professional to ensure you understand how much money you can expect to see from the sale and plan, so you don't run into any surprises come tax season.
Have you ever sold a home? What were some of the things that surprised you about the process? Let us know in the comments below!