The question is When you sell a house, do you have to pay taxes?
When you sell a house, you have to pay tax from the profit you gained from selling the house except you have lived in the house for two years within the last five years before selling the house of which up to $250,000 are excluded for an individual and $500,000 for a married couple.
There are so many reasons why you want to sell your house. You might want to change location or there’s an increase in your family size. Therefore, when you sell your house, it should bring you profit.
However, there are certain criteria to meet before your home sale can be tax-free. If you don’t meet those criteria, then you will have to pay tax from the profit you gained from the sale. You have to be familiar with the exemptions before you go on with the sale.
Gains from your home sale are excluded up to $250,000 for an individual and $500,000 for a married couple if you have lived in the house for two years within the last five years before you sell the house. This means if you buy a house today, you can’t just sell it next year if you want to be able to get the excluded amount.
Can I Sell my House?
Of course, you can sell your house. As long as the house legally belongs to you. You have every right to sell the house.
You will have different reasons for selling your house. You might want to move to a larger apartment or you have more than one house and you want to sell the other.
You can sell your house but you have to meet the criteria for getting the excluded amount. If you don’t meet the criteria, you might have to pay tax or get a reduced amount as your gain.
What Is the Best Season to Sell my House?
In most areas, spring is the best season to sell a house. While in other areas, it is early summer. Spring is the best season because you won’t get a tax refund until late winter or early spring. This will give you time and funds to do renovations in the house.
Also, during this season, trees grow and flowers bloom. This will give your house a good look thereby appealing to buyers (unless your area is always murky) Another reason is that the weather is warmer so buyers can move around to look for houses.
Early summer is the best season in some areas because the weather might not be too hot so buyers can also move around.
If the weather is always hot in your area, then summer isn’t the best time at all. There’s also competition during this time so your house must not be of a lesser standard. Winter isn’t a good season at all because of the cold.
When You Sell a House Do You Have to Pay Taxes?
You don’t have to pay taxes when you sell a house as long as meet the required criteria for getting the excluded amount of $250,000 for an individual or $500,000 for a couple with a joint return. Also, you must have lived in the house for two years within the last five years.
How Do I Avoid Paying Taxes When I Sell my House?
The following ways are how you can avoid paying taxes when you sell a house:
- The first way you can avoid paying taxes when you sell a house is by owning the house and have lived in it as your primary residence for two years. If you meet this criterion and in the three years before the sale, you didn’t live in it, you will still be qualified for the exemption. For more information on how long to live in a house to avoid capital gains tax, please read the post.
- This exemption is only allowed every two years. Even though you want to sell your primary residences, you can only be qualified for the exemption every two years. So if you want to sell another of your residence, you have to wait for two years before you do so.
- You can also avoid payment of tax by deducting the cost of capital improvement in the home from the proceeds of the house sale. For example, if you install a laundry room in the middle of the house, it is seen as a home improvement, you can deduct the cost of the installation from the proceeds of the house sale.
A capital improvement doesn’t have to do with repainting or appliances repair. They are installations that can increase the price of the money or installation that its removal from the house will cause damage to the house.
These installations would have been done when the house owner was living there. He/she should have a record of all the installations done in the house.
How Do You Avoid Capital Gains Tax When Selling a House?
A house is considered a capital asset. So you will pay capital gains tax when you make a profit from the sales. However, according to the Internal Revenue Service (IRS), there are criteria to meet before you will be excluded from paying tax.
- The first rule is that you must have lived in the house for at least two years no matter the number of years you rented out the house.
- The excluded amount is $250,000 for single and $500,000 for couple and it is only applicable every two years. This means if you live in the house for just a year and you make a profit from the sale, you would have to pay the capital gains tax.
- Also if your profit is way above the $250,000 for a single or $500,000 for the couple, then you have to pay the tax because you have exceeded the excluded amount. If you know all these, you would be able to avoid paying capital gains tax.
Advantages of Selling my House
The benefits you gain from selling your house are:
Source of Income
When you sell your house, especially in cash, you will get money from the sale. This is now dependent on if you are not at loss with the sale. This is why you should do some installations and home improvements that can bring an increase to the sale.
And if you qualify for the excluded amount, you’ll have $250,000 or #500,000 as your gain. With this, you can be able to meet your financial needs.
To Buy a Better House
Another benefit of selling your house is that you can buy a better one because of the profit you made from the sale. If your family size has increased, you would be able to get a bigger house when you sell your house.
Disadvantages of Selling Your House
Moving Isn’t Easy at all
Moving from one place to another isn’t easy actually. It doesn’t just affect physically, it can have a mental effect as you will be changing locations. Certain people take time before they adapt to a new place. Also moving has an effect on children more than adults. So before you sell your house and move, enlighten your children on what moving is all about.
Payment of Tax
Your house is a capital asset so selling it will incur capital tax. There are exceptions to paying the tax. But if you don’t meet the requirements, you’ll have to pay tax and this will reduce your profit.
Payment of Various Costs
If you are selling your house through a real estate agency, you’ll have to pay them their commission. Also, a professional moving company won’t help matters because they are very expensive.
Final Thoughts
To sell a house, you have to be familiar with the rules concerning it. You have real estate agents that can help you maximize your profit. If you are ignorant, you’ll lose almost all the gains from the sale. Have a professional tax advisor to show you how to avoid paying the capital gains tax. Also, now that you know the answer to the question When You Sell a House Do You Have to Pay Taxes, we hope you make good use of it.
