Selling your home is a major breakthrough in life. You might have heard a lot about the complexity of the home-selling process that keeps homeowners worried at all times, and let us tell you, you have heard it right. 

You must comply with a long list of requirements and walk the extra mile to attract the right buyers. Before you settle down from closing the deal for your home sales, taxes confront you. Homeowners usually overlook taxes in their home sales planning and panic afterward when they become liable. 

 

 

So, how does tax affect your house’s sales? Read this guide to find out. 

Do you Need to Pay Tax on Home Sales?

Everyone wishes for a profitable sale of their house, but few people know that a profitable sale may come with a burden of taxes. There are different types of taxes involved in a home selling process. Depending on your specific situation, you may or may not be liable for all of them. 

Every deal differs from others, so there is no final answer to whether you need to pay tax on home sales. Sometimes you can get a full or partial exemption due to the period of time you have owned and lived in a property. 

Types of Real Estate Taxes

Suppose you are selling your home in Belle Terre, Madison, MS, or any other neighborhood; what are the possible taxes on your home’s sales? The following are the common types of real estate taxes you may owe during home sales. 

Real Estate Sales Tax

The straightforward tax for the sale of a house is the real estate sales tax. This varies from state to state. Some states tax the sales of real estate while others do not. You must check with the taxing authority in your state to check if you are liable for this tax. 

Capital Gains Tax

As the name indicates, capital gains tax is imposed on the profit from selling a tangible asset. Here it means the tax on the profit of real estate sales. This means you must pay a tax when you sell a home for more than its actual purchase price. This tax is not inevitable, and there are ways you can avoid capital gains tax legally. 

Property Tax

This is a yearly local tax on property that the owner of the property must pay. Local taxing authorities collect this tax from the owner. For instance, if you have a home for sale in Stillhouse Creek Madison, MS, you have to pay the property tax calculated by the concerned local authority. The property tax calculation usually takes into account the value of land and the owned property. 

Real Estate Property Tax

This tax is calculated on the total or partial value of the sold home. Similar to real estate sales tax, transfer tax also varies among states. Some states don’t impose a tax on the transfer of property, while others charge different rates. 

Capital Gains Tax Exemptions

You may be interested to find out the tax exemptions more than anything. Let’s begin. 

  • Suppose you sold your home in Belle Terre Madison, MS, at a profit. However, you have owned and lived in that house for two of the five years before selling it. In this situation, $250,000 of the total profit is exempted from the tax. 
  • Considering the same situation, if you are married and file a joint tax return with your spouse, the first $500,000 from the profit is tax-free. Remember that these conditions imply the profit you make from the sales and not the actual sales income. 
  • If you sell your home for less than $250,000 profit while owning and living in it for two of the five years prior to the home sale, you do not have to pay any capital gains tax. This means that all of your profit is tax-free. 

How to Calculate Profit on Sales?

The first step to determining your tax liability is to calculate the total profit. It helps you determine if you owe any tax. Calculating the profit is not as simple as deducting the sales price from the purchase price. Instead, it has some important considerations.

Firstly, you must add the cost of home improvement repairs you did before selling your house. Since home improvement repairs add to the value of the house, they are included in the purchase price.  

The second step is determining the sales price. You must deduct any legal processing charges and other fees from the total sales. For instance, if you sold your home for $500,000 and paid $20,000 in commission fees and closing charges, you must deduct it to get the net sales amount. 

Now that you have the actual purchase and sales price, you can find the difference between the two to calculate total profit. If the amount is less than $250,000, you are exempted from tax. If it equals or exceeds $250,000, you must pay the due tax. 

 

 

 

The Key Takeaway

Taxes are an inevitable part of your home sales, so you must pay attention to them. Keep an eye on tax liability resulting from the sales and ensure to settle it timely. Refer to this guide to get an idea of important aspects of different taxes and their implications. When in doubt, consult an expert to avoid any complications. 

 

If you’re thinking of moving to Mississippi, be sure and check out our website www.taylorgroupms.com, it has all MLS listings in Central MS and is updated every 10 minutes.  Whether you're buying or selling, our team is here to help every step of the way.  Contact us today to get started.

 

Taylor Realty Group

601-613-9100