It is good to know that there are only some cases where you have to pay capital gains taxes on real estate. There is a difference between selling the home you live in and selling a second home you own that is more for investment or profit. Once you understand the small differences that would make you pay capital gains tax, you can possibly avoid having to pay capital gains tax on real estate if it applies to you. When you are dealing with big profits on real estate or anything, it is best to just consult a tax advisor so you do everything right.
How Much Is Too Much?
As of 1997, according to the Tax Payer Relief Act of that year, capital gains tax is owed on any profit made from the sale of a house over $250,000 if you are single, and $500,000 if you are married. To be clear, the amount is profit from the sale. This does not include the price you paid for the house when you bought it. So there is a lot of leeway, unless you are dealing with really expensive homes or an incredible windfall due to the steep rise in the prices of homes.
There are a few details about the house that you sell. The house you sell has to be your primary residence. The rule is that you lived in this house for at least two of the last five years. You can only qualify for this tax exemption every two years. In the past, home sellers were required to roll the profit from their home they sold into another home within two years of the purchase of sale. This is no longer the case.
Taxes and Second Home Profits
If you own a second home because you moved out of your first, you made an investment. If you are into flipping homes, then you are most probably going to have to pay capital gains taxes. The capital gains tax you will have to pay will be somewhere around 15% of the profit made on the home. It is just the way it is. Unless you want trouble from the government, you have to claim the profit made on a sold home. You have to pay the capital gains tax come April.
Making Money on Real Estate
Although real estate has its ups and downs, it is usually a sound investment. Right now the prices of real estate have gone up. Real estate is not always the great quick profit that it used to be. There are still exceptions. People with large sums of money can buy from auctions and get really good prices on homes. If you know good contractors that can fix up houses nice, you can make a good profit.
Get Tax Help
When it comes to capital gains and taxes, some people can do it themselves. It is advised that you get a tax professional to help you do your taxes. You may pay about $200 plus depending on how difficult your taxes are. This money is a drop in the bucket compared to how much a tax professional can help you save. There are deductions and savings that tax professionals know about to help you. Their knowledge is worth every penny you pay them. Plus taxes can be so boring.
Paying capital gains taxes is not a big deal. You will get all the deductions you can from additions or major work that has been done on your house. This is a good reason to have a professional do any work on your house. This way, the work is recorded and easily identified for tax purposes. If you were thinking about selling your home and were worried about having to give a lot of profit to Uncle Sam, you are probably okay. If you have any questions, contact a tax professional to help you with anything about taxes that causes you anxiety or you are unclear about. They will be able to answer your questions and keep you on a straight financial path.