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What Taxes Do I Pay When Selling My House?
If you have plenty of equity in your house and are considering selling, chances are you’re excited about the profit you stand to make. But before you get too enthusiastic about how much you’ll earn from the sale of your home, you’ll need to consider the potential tax implications of the sale so you don’t overestimate your profits.
At Beard Bros Buy Houses Cash, we’re real estate investors, and we buy houses throughout Omaha, Nebraska, and the surrounding areas. We know the process of selling a home can feel overwhelming, and we’re here to help you learn more about what you can expect.
Read on to learn all about the taxes you may need to pay when selling your house.
Do I Pay Taxes on the Profit I Make From Selling My Home?
Whether you’ll need to pay capital gains taxes on the profits from your home sale depends on a few factors:
- The amount of time you’ve owned the home
- The length of time you’ve lived in the home
- The amount of profit you ultimately make
- Whether the house is your primary residence
If you’ve owned and lived in your house for at least two of the last five years, you will not have to pay capital gains tax on up to $250,000 of the profit you make from the sale. If you’re married and file your tax returns jointly, you won’t have to pay taxes on the first $500,000 of your profit.
If your profit from the sale is less than the exemption amount you qualify for, you don’t even have to report the sale of your home on your taxes. However, if your profit exceeds the $250,000 limit for single individuals or the $500,000 limit for married couples who file jointly, you must report the sale of your home on your taxes, and the excess profit is taxable.
Breaking Down the Profit and Tax Numbers
Let’s illustrate the capital gains tax exclusion with an example. If you bought your house eight years ago for $175,000 and sell it for $700,000 now, you’d profit $525,000 from the sale.
If you’re single, used the home as your primary residence, and lived in it for at least two out of the last five years, you won’t need to pay taxes on $250,000 of that profit. However, you will have to report the sale on your taxes, and the excess profit of $275,000 is taxable since it exceeds the exclusion limit for a single person.
If you’re married, you’re filing jointly, and the same ownership and residence details apply, you won’t have to pay taxes on $500,000 of your $525,000 profit. But you will need to report the sale on your taxes, and the excess $25,000 profit is taxable.
How Do Taxes Work If I Haven’t Owned or Lived in My Home for Two Years?
If you have not owned or lived in your home for at least two of the last five years and decide to sell it, you’ll need to report all of your capital gains from the sale on your taxes. Because you do not meet the criteria to claim a capital gains exclusion, all of the profit will be considered taxable income, and you must pay taxes on it.
How Many Times Can I Use the Capital Gains Tax Break?
Each time you sell a primary residence — for tax purposes, that means a house you live in for at least 183 days out of the year — you can use this tax break. But again, you must have owned and lived in the home for at least two of the last five years.
It’s also important to note that you’re only allowed to claim this tax exclusion if you haven’t claimed it on another property in the previous two years.
Potential Exclusions to the Capital Gains Guidelines
If you don’t meet the criteria to claim the capital gains tax break, you may still be eligible to claim a reduced home sale exclusion, which will save you money on your taxes too. But to qualify for this exclusion, you must meet other criteria.
You may qualify if you must sell your home for any of the following reasons:
- You have to move because your physician recommends that you or another resident of your home change residences for health reasons.
- A member of your household has a medical condition, and you sell your house to get money to pay for their medical care.
- You have to move for a job that’s at least 50 miles from your current residence, and you got your new job while you were living in the home as your primary residence.
- You have to move due to unforeseen circumstances, such as divorce, inability to pay basic living expenses due to job loss, or natural/manmade disasters.
There are a few other situations that may qualify you to claim a reduced home sale exclusion, and you can learn more about them in Nolo’s IRS-Approved Unforeseen Circumstances.
Need to Sell Your House Fast in Omaha, NE?
If you’re looking for the simplest, most streamlined way to sell your Omaha home, get in touch with our team at Beard Bros Buy Houses Cash to get a no-obligation offer! We buy houses in any condition and can have an offer in your hands in as little as 24 hours from the time you contact us. Whether you want to sell your house fast or are looking for a more flexible selling timeline, we can help.
To learn more about our process or to get started, feel free to give us a call today at 402-810-8091 or contact us online, and we’ll get in touch right away.