If you are selling a house in the Central Valley, you will need to understand your tax liabilities. The following tips and information should help you when preparing to sell and when preparing your taxes!
For specific questions, contact a trusted tax professional, or the IRS!
Not All Profits Are Taxable
As long as certain conditions are met, you will be able to exclude a high portion of your profits. Typically, you are able to exclude $250,000 from your tax return, and up to $500,000 if filing a joint return. If you sell for a loss, though, you won’t be able to take a deduction for that amount.
This deduction is only available when you have sold your primary residence. It can also only be used once every two years. Lastly, to qualify for the deduction, you must have lived in the residence for at least two of the past five years.
It is important that your address is always kept up to date with the IRS
Even if you do not meet the requirements above, you might still be able to exclude a portion of your house selling profits. There are many special conditions that may allow you to receive a prorated, tax-free gain. If you need to sell because of a change in your health, a job change or other unforeseen circumstances, you will be able to write off a portion of the profit. We buy houses for cash at Offer4Cash, so we deal with a lot of people in such qualifying situations.
Reporting the Sale
You will need to report the sale if you receive a 1099-S form from the closing agent. This form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits. Let the agent know at the time of closing that the form will not need to be issued. Even if you are able to deduct all profits, if the form is issued, you will still need to file it with the IRS… even if no money is owed.
Capital Gains Taxes
If you are selling an investment property or house you have only owned briefly, you will likely be subject to the capital gains tax. Capital gains taxes are in relation to the profit you make. If you have a lower income, you will pay no capital gains taxes. People in higher tax brackets may have to pay upwards of 20%. Short-term assets are typically taxed the same as ordinary income.
First-Time Homebuyer Credit
Depending on the dates you bought and sold, you might have to pay back all or part of the credit you received. Typically if you move within 36 months of purchasing the home, the credit must be paid back upon the sale of the home. Special rules apply and can be found in Publication 523 from the IRS.
Deduct Selling Costs
When selling your the Central Valley house, you will be able to deduct any reasonable cost when selling your home. If going through a traditional sale, this includes the closing costs, improvements made in order to sell the house, assessments, marketing costs, real estate agent fees and so on. Even if you sell as-is for cash, keep track of any cent you spend in an effort to sell your home. Come tax time, this can amount to major deductions!
No matter what time of the year you sell, it is always important to seek the counsel of professionals. Consult your agent, accountant, and attorney to make sure you have set up the best terms for yourself.
Don’t stress too much about taxes when selling your house in the Central Valley, whether you sell quickly for cash or go through a traditional MLS sales process. Odds are Uncle Sam won’t be getting his hands on your profits.