Most home sellers enjoy capital gains tax exclusion and there are special laws you need to abide by if you sell a primary home, vacation home, or investment property.
In this article, you’ll learn whether you have to pay taxes when you sell your house, when they’re due, and other important things.
Do you have to pay any taxes on selling a house?
You’ve just put your house up for sale and you’re getting juicy offers for the house. And the offers are higher than the price you bought the house initially. At this point, you begin to wonder if when you accept to sell the house for these high prices, you’ll be owing the IRS taxes after the sale of the house, right?
Well, the answer is…maybe.
The IRS has a system known as the home sale gain exclusion which allows sellers who file joint tax returns to remove as much as $500,000 in capital gains from taxation. The sale gain exclusion system also known as primary residence exclusion also allows single filers to remove as much as $250,000 when they close the sale of a primary home.
To enjoy this benefit, you must have lived in your home (primary residence) for a period of at least two of the first five years and you must have been the owner of the home for at least two of the first five years. You don’t have to meet the ownership and residence requirements at the same time. Also, you can only claim ownership and residence of one home during the two years before the sale qualifies for this system.
When is a tax on selling a house due?
If there are any capital gain taxes you’re yet to pay on the sale of your home, then you have to pay them at the tax deadline for the year in which you closed the sale of your home.
However, there are instances where you may not be 100% sure of the payment and may have to make estimated payments; you need to confirm with the IRS’s guidance to avoid mistakes.
On the other hand, you can decide to increase your withholdings for the year instead of sending all your money to the ITS. For instance, if the sale of your home closes in March and you feel you’ll owe a whopping sum of $10,000 in capital gains tax due to the sale, you can add more money to your paycheck tax withholdings by $1,000 per month throughout the year to make up for the bill.
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