What Is the Tax on Selling Property?

Owning real estate is a fantastic way to increase your net worth. Many people look forward to the day they sell their homes so that they can cash in on all the equity they have built up over the years.

However, there is a tax on selling property that you need to keep in mind. Not sure where to start? We’ve got all the info related to the taxes you will incur when selling a house.

Selling Your Home Is Subject to Capital Gains Tax

Since a house is considered a capital asset, you’ll have to pay capital gains tax on it. However, this isn’t as overwhelming as it sounds.

You will have to pay capital gains tax if you actually gained money on the sale of your home. Put simply, if you don’t profit off of selling your house, you don’t have to worry about this obligation.

In the event that you do have to pay capital gains tax, you are only taxed on the profit that you made. So, selling a house for $500,000 with a $50,000 profit doesn’t mean that you pay taxes on the $500,000.

In the above scenario, you would only pay taxes on the $50,000 profit that you experienced.

How Much Is the Capital Gains Tax on My Home?

It’s important to understand what you can expect to pay in taxes before you sell a house. The amount you pay will vary highly depending on a handful of factors.

First and foremost, you are required to pay capital gains tax on a property sale if you have not occupied it for at least two of the past five years. In this case, any profit you experience will be treated as ordinary income.

Depending on how much you make, the tax rate could range from 0% to as high as 37%. Your tax filing status will also influence this rate.

If you sell a home while meeting the above requirements, you are able to tax-exempt the first $250,000 of profit if you are a single individual. Married couples can tax-exempt the first $500,000 of profit.

Any profit over these thresholds is taxed accordingly based on tax filing status and the total amount of profit received.

Are All Home Sales Fully Taxable?

While not all home sales are fully taxable, profits from many real estate transactions are.

For example, if you sell a house that is not your primary residence, you’ll need to pay capital gains taxes on the profit. The same can be said if you have not lived in the home for at least two of the past five years.

Additionally, you cannot exempt capital gains taxes if you sold a home within the last 24 months and exempted capital gains taxes from that sale.

For those who find themselves thinking “selling my home as is might be the best option for me,” you can check out this resource to learn more about how to handle this situation.

Navigating Tax on Selling Property Might Seem Complicated

As long as you keep the above information in mind, though, you’ll find that this responsibility isn’t as overwhelming as you might think. From here, you can easily handle the tax on selling property and ensure that all of your financial obligations are covered.

Want to learn more useful info that can help you out in the future? Be sure to check out the rest of our blog.