Taxes are something you need to be careful with since it involves money. Money is scarce nowadays, therefore, we should manage it wisely. We do not want to end up paying more for not doing things correctly. In case you are new to this field, there are several taxes you may want to take into account. There is something called capital gains tax on home sales. These capital gains taxes may vary.
Whether you have to pay taxes or not for selling your home depends on several things. It could be the case that you bought a house long ago. Now, this property value is much higher than what it used to be. As the value of your home has appreciated and it is a capital asset, you might have to pay taxes. Nonetheless, thanks to the Taxpayer Relief Act that came into effect in 1997, you may not have to pay it.
Indeed, most people who have got a house and decide to sell it, usually do not need to pay any tax. There is a tax exemption when the limit is not exceeded. For instance, if you are a homeowner and you are single, there is no need to pay taxes up to $250,000 profit for the first time. You could be married though. If you are married, the amount of money is different. In this case, the profit goes up to $500,000 which can get an exemption.
Does any house you own and sell have a tax exemption?
IRS –Internal Revenue Service– allows tax exemptions. However, in order to get it, your home must have been the main place where you have lived for at least two of the five previous years. Besides, not only living but also owning the house for at least two of the 5 previous years. There is a further point which you need to pay attention to. You cannot have claimed another tax exemption for a previous house during the two previous years before the house sale.
If you do not meet the requirements that IRS establishes, you must pay taxes. Once more, it will depend on the earnings you have got. Not only your income, but also how long the house belonged to you. Remember that there are two main categories. For example, if you only owned the house for a year or less. So, it is very important to take this into consideration and perhaps wait longer to sell it.
The second main group is when you have owned the house for a period of over a year. The amount of money you have to pay may differ. If the capital gains are in the short term, they will rely on your income. Nevertheless, if the capital gains are in the long term, you may have to pay between 0%, 15%, or sometimes even 20%. Contact IRS first before selling your house so as to avoid paying taxes for not knowing the law.