Selling property, be it a home or a farm, has tax benefits and consequences that all sellers should be aware of. When a property is sold, the seller will not get 100% of the sale proceeds. Instead, they may have to pay taxes on the profit, pay your realtor and agent, and other fees.
Sellers May Be Eligible For Tax Benefits
Deductions and tax breaks are some of the benefits of selling a property. Sellers may be able to take out property tax deductions from the beginning of that year to the time they sold the home. Sellers can deduct costs, such as home improvements made to sell the house.
They must also deduct all selling costs from their capital gain, including:
- Legal fees
Consequences Include Paying Capital Gains Tax
If a property is sold for more than a set number, the seller will have to pay capital gains tax on the profit. Capital gain occurs when a property for more than what was spent on purchasing it, including sales taxes and other costs initially. For example, if Mary purchased a home for $150,000 and sold it for $200,000, the difference is her capital gain. She will need to report that gain on her taxes.
For many sellers, their property is exempt from capital gains tax if they meet the following criteria:
- Profits from the sale must not exceed $250,000.
- The home must have been the primary residence and owned by the seller for at least two of the five years before the sale date.
- The seller hasn’t excluded any gains from a previous home sale in the two years before the current sale.
Married couples filing together can exclude up to $500,000 but must meet ownership requirements.
Always check with a trusted accountant or other trusted financial advisor before submitting taxes after selling property. Taxes vary from state to state and can change at any time. A financial advisor will work with you to make sure that you are eligible for benefits.