What Taxes Do I Pay When I Sell My Home?
When you decide to sell your home is one of the most important decisions and life changes you can make. Whether buying a bigger home because there is not enough space in your current residence or downsizing as your children go off to college, selling a home is a big event. One of the most confusing parts for most home sellers is figuring out the taxes of selling their property and how a home-sale process will affect their finances. We Buy Houses Tulsa has prepared this guide to explain all you need to know about the taxes you will owe when selling your home.
Do You Have to Pay Any Taxes When Selling a Property?
Yes, there is a chance that you will have to pay taxes on the money you make from the home sale. However, certain exceptions may result in you spending just a little or no taxes.
If you have lived in your home for at least two of the five years before the sale, the first $250,000 you make is tax-free. If you and your spouse file a joint tax return, this tax-free amount will double and increase to $500,000. However, it is essential to understand that this is the first $250,000 (or $500,000) profit, not the sale price. This means your tax is based on the final amount you receive from selling your property after subtracting all expenses. It does not mean the total amount the buyer pays for the residence.
How to Find Out the Profit From Selling Your House
To find out the profit of your home sale, you need to do some calculations that are not as easy as you may think. The first step is figuring out the cost basis for your house. You will need to consider the total amount you have spent to buy your home and all the renovations, improvements, and repairs you have spent money on. For example, if it costs you $15,000 to add one more room to your house, you must add this amount to the cost basis.
The next step is subtracting costs, such as realtor fees, closing costs, and other expenses, from the amount you sold your house for. For example, if you sold your home for $250,000 and paid $20,000 in fees, the total amount you made would be $230,000.
The final step is subtracting the cost basis from the total amount made on the home sale. You do not owe any taxes if the number you receive is lower than $250,000.
Applying for a Reduced Exclusion “Tax Break”
If you do not meet the above requirements, a reduced exclusion allows you to claim part of the tax break. For example, if you have lived in your house for just a year, you can be exempt from only $125,000 of any profit you make from selling your property.
However, a good reason must exist to qualify for a reduced exclusion. Acceptable reasons include changes in health, changes in employment, or any other unforeseen circumstances that make it necessary to sell your home sooner than you initially planned.
Sell Your Home to a Cash Buyer to Simplify the Process
Selling your home is a big undertaking. To simplify the process, you can sell your home to a real estate investment company that will buy your house as-is for cash. If you live in Tulsa, We Buy Houses Tulsa is ready to assist you. We are local home buyers, buying all types of houses in any condition and in any neighborhood. You do not have to hire a realtor, pay a realtor’s fee, or do any repairs. If you are interested, contact us today online or by phone at 918-739-6777 and receive your cash offer as soon as tomorrow.