With The Housing Market Being So Crazy Right Now I Was Wondering If People Are Going To Be Surprised And Have To Pay A Lot Of Taxes At The End Of The Year?
Well that depends on 3 different questions, first is the house owner occupied, second thing is how long have they lived there, and third question is how much did they make? If they did live in the house for longer than 2 years, then each owner gets a $250,000 exclusion. So, if you and your spouse sell a house that you have lived in for 3 years and you made $499,999 you are excluded from paying taxes on it.
What Is The Tax Burden If You Did Not Live There For 2 Years?
That is figured out by a calculation on the amount of months that you lived there divided by 24 for the 2 years. If you have held your home for more than 1 year you will pay the lower capital gains rate and unless you made a fortune on the sale it generally wont equal out to much.
What If You Made Over The Exclusion Or If You Did Not Live In The Home?
In this case you will take the homes current value minus the purchase price and any closing fees or repairs that you had to do to close the sale, this would include realtor fees as well. You will have to pay capital gains on whatever that difference is. If the property was a business and you depreciated that then you have to bring that depreciation back in. Capital gains vary depending on a few different things but at max it will be 25%. Biden was talking at one time of increasing this to 44% but I haven’t heard that in a while so hopefully that ship has sailed. I also want to note that this is the taxes that you will pay federally. If the house is located in South Dakota or any other state that does not have state income taxes, then that is all you will have to worry about. If the property is located in a state with income taxes, then you will be subject to their law as well.
Is This The Same If You Inherited The Property?
Well just like any other tax question it all depends on the situation. So if the property goes into a trust or something of the sort at the time of death, then if the trust sells it within a year and the proceeds go to the heir then you will not pay federal taxes on the sale. The federal law doesn’t charge an inheritance tax on the heirs; however some states do charge inheritance taxes. Now if the property went into the trust at formation, then that is when the value or cost basis of the property was established so if you made over that then the trust would be responsible for capital gains in taxes. If you take over the property, then it becomes yours personally so the sale will follow the guidelines that we already talked about.