Selling a house is one of the most important decisions and life changes you can make. Whether you are 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 paying just a little or no taxes at all.
If you have lived in your house for at least two of the five years before the sale, then the first $250,000 that 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 important to understand that this is the first $250,000 (or $500,000) of profit, not the sale price. This means that 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 of money the buyer pays for the residence.
How to Find Out the Profit on Your Home Sale
To find out the profit on 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 take into consideration not only the total amount you have spent to buy your home but also all the renovations, improvements, and repairs on which you have spent money on. For example, if it costs you $15,000 to add one more room to your house, you need to 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 that 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. If the number that you receive is lower than $250,000, you do not owe any taxes.
Applying for a Reduced Exclusion
If you do not meet all of 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, there must be a good reason 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, and we buy 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.