There can be a great deal involved in buying and selling houses, whether it’s for the first time, the second time, or any time after that. Alongside dealing with realtors and paperwork, you also have to concern yourself with hidden costs.
This can lead you to ask the question: do you pay taxes when you sell a house? We’ll provide some helpful information below.
Do You Pay Taxes When You Sell a House?
As of 2021, in the United States, most property sales are tax-free. When you sell to a family, individual, or business, you can generally avoid paying taxes related to the sale of your property.
Knowing that there aren’t any taxes connected to a property sale, many home sellers won’t even report their sales to the IRS. However, it’s important to note that there are exceptions to the tax-free rule.
Paying Taxes on Property Profit
Whether you added value to your property or purchased it at the right time, you might be making a significant profit when selling your home. In that case, it can be essential to read through the fine print to make sure you are aware of your tax obligations.
You don’t have to pay tax on a property sale if you lived in it for two of the five years leading up to the sale date, as long as you made less than $250,000 profit. When you file a joint return as a married couple, that tax-free figure can increase to $500,000.
This law upheld by the IRS remains valid each time you buy and sell your primary residence. If you exceed profit levels of $250,000 or $500,000, the excess is a capital gain, which you must pay tax on.
When Do You Have to Pay Tax On a House Sale?
We aren’t all able to predict when we have to sell our homes. For example, some people approach deed buyers who buy and sell properties because they can’t keep up with their bills or have costly repairs they can’t afford.
This means that when you need to sell your home, you may not be in a situation to meet the eligibility for tax-free status.
Typically, this occurs when:
- You haven’t lived in your house for two of the five years before your sale date. These two years don’t have to be consistent. For example, you might have moved out for a year, then returned but still lived there for a total of two years.
- It isn’t your primary residence. This means you haven’t lived there for the two years of the five before selling.
- You have excluded the gains of another property in the two years before the sale of this property.;
Sell a House Easy
You might think tax complicates your situation when selling. However, it doesn’t have to. When you sell to companies in the business of buying and selling, they can walk you through the sales process and help you tie up loose ends so you can walk away with cash in hand.
There will be some situations that require you to pay tax when you sell a property. However, there are also just as many that allow you to sell a home tax-free. If the idea of paying tax has put you off looking at your sales options, you’ll be pleased to know you might have more financial freedom than you first thought.