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
Amie Lindwall-Belile
As your real estate professional, Amie has an extensive knowledge of the local real estate market to meet your needs. Born and raised in Fairfield County she understands the true value of this area. If your money’s involved, then the stakes are high. You can have confidence that Amie will get the job done. Licensed in 2004, she won her office’s Rookie of the Year award. Since then, she has been recognized as a multi-million dollar producer, an Honor Society member, Agent of the Month on numerous occasions and has received various other awards for her successes.
Having graduated from Southern Connecticut State University with a B.S. in Communications focusing on technology, she is able to provide her clients with the most comprehensive cutting edge services and tools. She is the co-founder of an organization close to her heart, The Dennis Lindwall Foundation, running annual events to raise money for pediatric cancer related causes. Over the years, the Dennis Lindwall Foundation has donated more than $100,000 to these charities.
Whether you are buying or selling a home in Fairfield County, you can rest assured that she will work very hard for you. With Amie, you will get the professional yet personalized care that you deserve. Take the first step into this exciting process, with Amie Lindwall-Belile.
