Real Estate Article Date and Time
Jul 31

2007

How will I be Taxed on my Home?
4 Ways to handle Taxes from the Sale

Taxes are one of the most commonly misunderstood areas of home ownership, and many people don’t realize they have several tax options when they sell their house.

In fact, the government provides those options simply to encourage home ownership by limiting the amount of taxes home owners pay depending on how long they’ve owned their home. Here’s how it all breaks down:

Less than one year

If you’ve owned your home for less than one year, you will be taxed on any equity or profits from your sale as ordinary income. For example, if you’re in the 33% tax bracket and have $100k in profit then you would owe $33k in taxes. Obviously, you want to avoid this situation if at all possible!

More than a year

If you’ve owned your home for more than one year you can qualify for “long term capital gains.” Long term gains are taxed at 15%. This is a significant savings over being taxed as ordinary income. With $100k in profit you’d only owe $15k in taxes.

Past the two year mark

If you live in your home for two of the last five years you can pocket up to $250k in profit “tax free” (or $500k for married couples). There are some basic requirements, of course, such as the house has to be your “primary residence” and a few other details. Read more about selling your home tax free.

And if you want to sell your home anytime. . .

You may have heard the term “1031 exchange” especially if you’ve talked with investors. A “1031 exchange” allows you to move 100% of the profits from the sale of one property into another property (or multiple properties) tax free.

Of course there are rules and regulations to follow, but using this method defers paying taxes and allows you to keep growing your equity. Its main advantage is that anyone can do it at any point in time.

Before you sell your home, be sure to determine how you are going to deal with the taxes. Educate yourself so you can hold on to as much of the profits as possible.

If you have questions about your situation feel free to contact us.

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Peter StewartPeter Stewart is a licensed real estate broker in Portland, Oregon as well as a frequent contributing writer for OHM. Please don't hesitate to contact him with any questions you may have about buying or selling a home in the Portland area.

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