Among the myriad costs associated with selling a home, taxes for capital gain on real estate can take up a significant portion. You'll have to pay capital gains tax depending on how long you've owned the property before selling it, and rates can vary by region.
Here is a basic rundown of capital gains tax to help you learn more:
When you start thinking about selling an investment property, one of the most important questions to ask is, “When did I purchase it?” Capital gains and losses can occur over short or long periods, and have different tax rules. If you've had the asset for less than a year, it counts as short-term.
Short-term capital gains taxes use the same percentage as income taxes, which can be upwards of 37%. A long-term capital gain on a property you've owned for more than a year is taxed at a lower rate of 15% to 20%.
State and local authorities collect taxes on real estate to support public services, school projects and other services - just like income tax. However, real estate tax rates are determined by multiplying current tax rates by the value of the properties. Tax rates vary among jurisdictions and may vary depending upon the assessed value of the home.
The simplest way to reduce the cost is to stay in your house for more than one year. This will take you from short term capital gain into long term capital gain, and a lower tax rate.
You can avoid capital gains tax by completing a 1031 exchange, which is a specific type of real estate transaction for investment properties. This is a popular method among real estate investors, but only works if the property you're selling is not your primary residence.
Taxes can be complicated, and real estate is no exception. However, understanding these basics will help you better navigate the real estate world and make the best financial decisions for your future.
Hi, I'm Mary Clymer and I'd love to assist you. I've been a licensed Realtor in Michigan since 1997. I love my profession and strive to treat all my clients and fellow Realtors with respect, honesty and integrity. My greatest joy is to receive a second and third call from previous clients. It tells me I've made them very happy. Whether you are planning to buy or sell, that is my specialty.
I was born and raised in the Onsted area, as were my daughters and I truly care about our County and State. My family, office family and faith in God have been my rock. I am very proud to be an Associate Broker with Heart O The Hills Realty.
