Tax Implications of Selling a House

Recently sold a home? Congrats! Getting the sale money is great, but what will your taxes look like? Most language about property taxes is filled with jargon and nuance, but don’t be intimidated, we’re here to break down the basics.

Who Pays What After You Sell?

When selling a house, taxes are almost always settled at closing. There’s usually a system in place where both sellers and buyers pay their fair share, with safeguards to ensure all parties are protected.

If you live in an area where property taxes are paid in advance, the seller will have already paid the full year and the buyer will refund the seller a prorated amount. In some areas property taxes are paid in arrears, which means s the homeowner pays for the billing period leading up to the due date; in that case, the seller will refund the buyer.

Capital Gains and Qualifying for the Maximum Exclusion

The type of home is of little importance when it comes to taxes on selling a house. From single-family homes to loft-style condos or houseboats, the taxing ‘powers that be’ allow certain tax breaks for qualifying sales.

• You owned and personally used your main home during at least two of the last five years before selling
• The home didn’t become yours by way of a like-kind exchange (also known as a 1031 exchange) in the last five years
• You haven’t claimed an exclusion for the sale of another home within the last two years

If you are able to exclude your gain, you don’t have to report your home sale on your income tax return. If one or more of the above are not true, don’t despair—you might still be eligible for a different tax break. Visit IRS.gov for more information.

What if I Sold My Investment Property?

Investing in residential properties is a wildly popular real estate activity. However, some investors aren’t as informed as they should be about the tax implications.

Unfortunately, if you’re trying to sell a house that was never your main residence, or that you’ve never lived in at all, you won’t enjoy the same tax breaks you get when selling a primary residence. In such cases, your second (or third, fourth, etc.) residence is considered an investment property, and the tax burden is very different (hint: usually a lot more costly). Visit IRS.gov for information.

Taxes on Transfers

If you transfer your home’s title (or share of a jointly-owned home), you are considered to have no gain or loss to tax. Your local taxing authority will expect whoever owns the home when the taxes are due to pay the full amount owed.