When Selling My House, What Taxes Do I Pay?
Selling your current home is probably one of the most important decisions you can make. Maybe you need a bigger home because your family is growing, or maybe you decided to downsize after your children moved out. Or perhaps you got a new job and have to move to a different part of the country. Regardless of the reason, selling a home is always a big deal. One of the most confusing and challenging parts of the sale process is understanding the taxes and how they will affect your finances. In order to help you understand them better, We Buy Austin Houses prepared this brief guide with basic information:
Is Paying Taxes on the Sale of Your Home Required?
Yes, you will most likely have to pay taxes on the amount you make on the home sale. However, this will depend on how long you owned your current home and how long you lived in it before you decided to sell it. The profit you make will also determine whether you need to pay taxes or not. For example, if you owned and lived in your home for at least two of the five years before the sale, then the profit up to $250,000 is tax-free. This amount doubles to $500,000 if you are married and file a joint return.
The law allows you to use this exclusion every time when you are selling your primary residence (your main home), as long as you have lived in and owned your home for two of the five years.
Also, if you are married and want to use a $500,000 exclusion, you must meet the following requirements:
- You must file a joint return.
- At least one of the spouses must own the property for at least two of the five years before the decision to sell it.
- Both spouses must have lived in this home for at least two of the five years prior to the sale date.
How to Calculate the Profit From Your Home Sale
The first thing you need to do is find out the cost basis of the property you are selling. You need to take into consideration the total amount you have spent to buy your residence plus all the money you used for repairs, renovations, and improvements. For example, if you had to spend $10,000 on the kitchen renovation, you should add this amount to the cost basis.
The next thing you need to do is subtract closing costs, realtor’s commissions, and other expenses from the total amount you sold your home for. For example, if your home’s price is $300,000, and you had to pay $15,000 in fees, the total amount you made is $285,000.
Finally, you need to subtract the cost basis from the total amount you made selling your home. If this amount does not exceed $250,000, you owe no taxes on the sale.
You Can Apply for a Reduced Exclusion
You can also apply for a reduced exclusion to claim part of the tax break if you do not meet any of the aforementioned requirements. For example, if you have stayed in your current house for one year only, you can exclude up to $125,000 of the profit you made from selling your home.
However, it is important to know that you must have a really good reason in order to qualify for a reduced exclusion. Changes in employment, health issues, or any other family and personal circumstances that make it necessary to sell your house immediately can be considered good reasons for a reduced exclusion.
Sell Your Home to a Home Investor to Avoid Taxes
There is another good method for those who do not want to pay any taxes: sell your property to a home investor or cash buyer. Home investors buy homes as is and do not require you to spend money on any repairs or renovations. If you live in Austin and own a property that you want to sell, We Buy Austin Houses is ready to assist you. Our mission is to make the selling process as easy and straightforward as possible for our clients. All you need to do is contact us with information about the house you want to sell, schedule a meeting to view your property, and receive a cash offer from us that you can either accept or deny. Feel free to give us a call if you have any questions or need more information about the process.