Many of our clients have recently been asking us about how selling their home affects their taxes, given it is tax season. Therefore, we thought we would share with everyone some answers to the most common questions we have recently been asked.
What taxes will I have to pay when I sell my home?
There is no simple answer to this question. Rather, the amount that someone will have to pay is on a case by case basis. For this article we will focus specifically on selling your home in the state of Texas. Here are some simple guidelines:
- When Americans file for their taxes, they generally file a state income tax return and a federal income tax return. However, in the state of Texas there are no income taxes. Therefore, a homeowner looking to sell their home does not need to worry about paying this part.
- Every homeowner will be responsible for paying capital gains taxes. Capital gains taxes are taxes paid on the profit that a homeowner makes from their home at closing. The percentage that an individual pays depends on the tax bracket that they fall into, as well as how long they lived in their home. Additionally, the tax law provides an exemption for those who have lived in their homes for two out of the last five years: $250,000 for those that file single and $500,000 for those that file jointly. For this exception though the homeowner must have owned the home for at least two years.
- Selling an Inherited Property: If someone inherits a property, they are only responsible for paying capital gains taxes on the home’s gain since the date of death of the individual that passed the home on.
- Selling an Investment Property: Similar to that of your primary home, a homeowner will have to pay the capital gains taxes on the home. Unless a homeowner lived in the home previously (two of the last five years), they will be responsible for paying long-term capital gains according to the Tax Cuts and Jobs Act. Here is a brief breakdown of the tax rate:
- 0% for single filers with taxable income of $0 – $39,375, married filing jointly with income between $0 – $78,750, heads of household making $0 – $53,750, and those married filing separately with incomes between $0 – $39,375;
- 15% for single filers with taxable income of $39,376 – $434,550, married filing jointly with income between $78,751 – $488,850, heads of household making $53,751 – $461,700, and those married filing separately with incomes between $39,376 – $244,425; and,
- 20% for single filers with taxable income of over $434,550, married filing jointly with income over $488,850, heads of household making over $461,700, and those married filing separately with incomes over $244,425.
When will I have to pay those taxes?
If you sell your home this tax season you will not need to pay taxes until you file in 2020. Therefore, selling your home now does not impact your tax returns for 2019.
Is tax season a good time to sell my home?
Contrary to popular belief, tax season is a great time for any homeowner to sell their home. As mentioned above, homeowners are not affected until the following year. So, selling in tax season can actually provide an array of benefits.
Winter time brings more serious buyers to the table. Not everyone who goes on the house hunt is ready to pull the trigger on purchasing their next home – however, when marketing and selling during tax season, the buyers are generally those who have considered how much they will receive or how much they will have to pay this tax season. Therefore, they will have a better understanding of their financial position and maximum amount they can spend on their purchase.
In addition, tax season is the time in which the fewest number of houses are on the market. This means that there is less competition so you can get the best offer for your home. Many homeowners are deterred because of the distractions during tax season and their personal belief that buyers are not looking at this time.
How Should You Sell During Tax Season?
There is no doubt that this time of year can be somewhat stressful. Taxes are due, the children are back at school, and families are taking a break after a busy holiday season. However, as a homeowner, you may want to take advantage of this unique time to sell. Remember, if you sell now you will not need to pay taxes until 2020 – this will give you plenty of time to discuss with an accountant how to save the most before filing next year.
There is a solution to avoid the hassle of listing and marketing your home though: Sell to an all cash buyer. In this process you as a homeowner can sell your home at a competitive price without requiring the excessive time of working with a broker. If you are interested in learning more, read about the benefits here, or contact us today for a free consultation.