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:
Short-term versus long-term capital gains tax
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.
How much capital gains tax can I expect to pay on real estate?
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%.
How real estate taxes work
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.
How to avoid capital gains tax on home sales
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.
About the Author
Robin Anderson Real Estate
“My Passion is people and relationships and I promise to provide my clients with exceptional service tailored to their individual needs.” -Robin Anderson
Georgia native, Robin Anderson brings her passion for people and her love of homes to work for her clients. She and her husband, Andy, have been married for over 30 years and have two adult children, Ellen and Drew. They currently live in Fulton County, but Robin has lived and invested in properties throughout metro Atlanta as well as helped clients buy and sell. She has been integral to many real estate endeavors including designing and building several custom homes, remodeling homes, subdividing land, managing rental properties, and buying and selling properties. She spent her first 3 years in real estate working with a new home builder, and she has spent the last 6 years working with buyers and sellers in her own community. Robin is highly motivated but sensitive to the fact that buying and selling homes can be an emotional experience, so she makes it a priority to keep clients closely informed throughout the process and strives to produce quick results. She appreciates the opportunity to help her clients navigate the real estate process, and she aspires to deliver quality customer service that is both informative and positive. She is driven to provide outstanding service for her clients and she is focused on building successful and lasting relationships with her clients. This personalized service earns her enthusiastic referrals from clients she is pleased to call friends.Edit
