Most home sellers do not know that there are significant taxes on the profit from the sale of your home or investment property. This is one surprise it is better to avoid after you have made such a considerable time and investment into your home. When the value of an investment in your real estate, experiences growth and is sold, there is a tax on the capital gain at that time. When the acquisition sells, the capital gains are said to be realized by the investor.
The IRS approaches the taxes on these capital gains in different ways, depending on how long the investor held on to the original investment. Investors can deduct your original purchase price to determine the profit or capital gains. You can subtract the original investment and any costs of improvements from the profit from the capital gains.
Calculating your taxes, from acquisition to resale, should be completed before you close on your investment. A significant part of this overall calculation should include a plan to limit paying capital gains taxes when it is time to exit a property. We will explore more about what Lancaster home sellers need to know about capital gains taxes.
These taxes are capped at a specific limit and Lancaster home sellers need to understand how these rate limits on capital gains taxes will affect their investment. A capital gain rate of 15% will apply should your taxable income be at least $80,000 but less than $441,450 for single filers, $496,600 for married filing jointly or qualifying widow(er), $469,050 if you plan to file as head of household, and $248,3000 if you are married filing separately. A rate of 20% will apply to any gain over the top threshold of the 15% rate, with some exceptions. Individuals with significant income may be subject to a Net Investment Income Tax (NIIT). If your capital gains are in the red because of capital losses, the amount of excess loss you can claim is limited as well.
Married vs. Single
In many cases, there is an exclusion available every two years for Lancaster home sellers on capital gains taxes of up to $500,000 over cost basis for married couples filing jointly for single investors. The exclusion is $250,000 over cost basis. One of the requirements for this exclusion is that you have to have lived in the property as your primary residence two of the last five years.
In some cases You may be required to make on-going estimated payments on your capital gains. It is always recommended that you consult with a tax advisor to ensure you are being proactive and making the right financial moves before you are caught by surprise on taxes you were not expecting. There are strategies that you can put into place to offset these taxes with capital losses. Deferrals of capital gains are allowed under a 1031 exchange of like properties. Covering your bases means you have built a strong team of professionals to help guide you through the process ensuring you save as much of your hard earned investment as is possible.
The Phil Symonkhonh Team understands just what Lancaster home sellers need to know about capital gains taxes and what you can do to avoid them – sell to The Phil Symonkhonh Team or buy a “like-kind” investment from our inventory of great investment properties! At The Phil Symonkhonh Team, we make it easy to keep your hard-earned investment profits at work, earning wealth and long-term passive income for you! Call The Phil Symonkhonh Team at 717-824-5381 or send us a message today!