It’s February already. We have hearts in our eyes for Valentine’s Day coming up, but we’re also thinking about another big day: Tax Day. It’s that time of year that we start gathering up our important documents and either pulling up a seat in front of the laptop or taking them down to our CPA. We know, we know … the deadline is still a couple months ahead to get this done, but we thought we’d remind you of a couple of real estate tax points.
It’s a great time to buy or sell your property! The market has really been picking up, and a better economy means people are changing jobs—so they have to move in a hurry. With all these houses changing hands, lots of taxes have to come out of pocket, right? Well, not necessarily. We checked out this article to bring you a few helpful facts.
If you sold your house in 2017, you might not owe any capital gains taxes. In fact, most people won’t. If you’ve lived in your house for at least two of the previous five years—as your primary residence—and you made less than $250,000.00 in profit from the sale, then you don’t owe taxes. If you’re married and file taxes jointly, the profit margin goes up.
If you haven’t lived in your home for more than 2 of the last 5 years, and you’ve rented it out, you’ll have to pay up to 15% taxes on the sale. This is true of second homes, too.
If you lose money on the sale by selling your property for an amount less than you paid, then you don’t owe taxes (but you don’t get any extra tax help, either.)
This is a different story. If your property loses value, but you still sell it for more than you paid, you’ll have to calculate your taxes at 15% on the money you made. The depreciation value is taxed at a different rate. This is a case best discussed with your tax professional, because (as you can see) it’s complicated.
What if you sell a rental building and accept monthly payments from the buyer? You’ll still have to pay gains taxes, at a percentage of the monthly payments. You’ll end up paying the same amount of taxes, eventually, as you’d have paid if you’d gotten the whole lump sum up front.
There are lots of ways to do real estate business, including property trading. This is usually done with commercial property. If you trade properties for an equal, “like” property, you won’t owe taxes at the time of the trade. You’ll still owe when you sell, though.
For all of these real estate tax issues, it’s always better to be completely sure of your tax responsibilities. Consult your trusted CPA! You don’t want taxes to fall between the cracks (risking an audit) or, just as bad, you don’t want to end up paying too much!
Interested in buying or selling your East Tennessee home? Check out DarleneReeves-Kline.com and get started!