Your Home Sold Guaranteed Realty - Phil Aitken Home Team

Phil Aitken
Phil Aitken

Do I pay capital gains when I sell a house?

Selling a home and wondering, “How much would my capital gains tax be?” Capital gains tax is a necessary tax you’ll pay when you sell your property. It’s important to factor in this tax when preparing to sell your home, so you can create an effective budget and maximize your profits from the sale.

In this post, our real estate experts at Your Home Sold Guaranteed Realty - Phil Aitken Home Team will discuss how much your capital gains tax can be. We’ll also answer several other questions, including how capital gains tax is calculated and some tips to lower the amount you pay.

  • What is capital gains tax and how does it apply to selling a house?
  • What exemptions or exclusions may be available to me when selling a house and how do they work?
  • What are the tax implications of selling a house and how can I prepare for them?
  • Do I need to pay capital gains tax when selling my primary residence?
  • How can I calculate my potential tax liability when selling a house?

How Much Would My Capital Gains Tax Be?

To answer the question, you’ll first have to determine how much profit you made on your home sale. This can be found by taking how much you originally bought your home for and subtracting it from its sale price. 

Once you have that number, the amount of tax you pay on it will be determined by factors like how long you’ve owned the property and your income level. For example, if you’re selling your home after owning it for a year or less, you’ll pay a short-term capital gains tax. This rate is taxed the same as regular income rates.

If you’ve had the home for over a year, you’ll pay long-term capital gains tax. The tax brackets for long-term capital gains tax are determined by your income and range from 0% to 20%.

In addition, the IRS allows you to exclude a certain amount of the capital gains from being taxed if the home being sold was your primary residence. If this is the case for you, you’ll be able to exclude $250,000 from being taxed if you’re single and $500,000 if you’re married.

It’s important to keep in mind that different locations may have various laws regarding capital gains tax, and the specific exemptions or deductions that may apply. For this reason, it’s crucial to reach out to a tax professional to determine exactly how much you can expect to pay.

Are They Added Your Total Income to Put You in a Higher Tax Bracket?

Whether or not your capital gains put you in a higher tax bracket depends on what kind of capital gains tax you paid– short or long-term. Because short-term capital gains are taxed the same way as regular income, they can end up potentially pushing you into a higher tax bracket.

Long-term capital gains cannot be added to your total income and put you in a higher tax bracket. This is because long-term capital gains are not seen as ordinary income and are taxed at their own rate.

How Do I Avoid Capital Gains Tax?

While you can’t avoid capital gains tax entirely, there are several strategies you can use to lower the amount you pay. This includes:

  • See whether you qualify for any exemptions or exclusions. A tax professional can help you analyze the tax laws in your area and see if you qualify for any exemptions, exclusions, or reduced tax rates
  • Consider the timing of your sale. Aim to hold on to a property long enough to qualify for long-term capital gains tax rates, which are more favorable than short-term rates. 
  • Use any capital gains losses to offset your gains. If you have other assets that have declined in value, you may be able to use the losses to offset your gains and lower the amount of tax you have to pay. A tax professional can help you with this strategy.
  • Keep receipts for your home improvements. Saving receipts for improvements like remodels, landscaping, new appliances, or upgrades can potentially lower your capital gains tax. This is because they contribute to your cost basis, which is how much you originally paid for the home, plus the improvements you’ve done to it over the years. A higher cost basis means your capital gains tax will be lower. 

Do I Pay Capital Gains Tax On Inherited Property?

You’ll only have to pay capital gains tax on inherited property once you decide to sell it. If you decide to sell, the taxes will be calculated differently. With inherited properties, you’ll only have to pay capital gains on the appreciation that occurred since you started owning the property.

Can Capital Gains Tax Be Deferred?

When it comes to real estate investments, capital gains taxes on a property can be deferred in several ways. First, you can use a 1031 exchange to reinvest the capital gains profits from your property sale into a new property. Then, the capital gains taxes won’t need to be paid until that property is sold.

Another option to defer capital gains taxes is by investing in a qualified opportunity zone. These zones come with tax incentives, including deferring or reducing the tax.

Lastly, you can defer your capital gains tax through an installment sale. In this case, the buyer of your property will make payments on it over a period of years. With this system, you won’t have to pay capital gains until you receive the full amount of the sale, plus interest.

Can Capital Gains Be Offset Against Income Tax?

In most cases, there’s no need to offset capital gains tax from income tax, since capital gains tax is calculated separately. But if you’re paying short-term capital gains tax, you can potentially offset the amount of tax if you have other assets that you sold at a loss. In this case, the losses can be used to offset your gains. 

Do I Have to Pay Capital Gains Tax Immediately?

Capital gains taxes are typically paid in the year the sale occurred. But in some cases, they can be paid in installments. Your options will depend on the tax laws in your area.

Sell a Home in Jacksonville and Get Top Dollar With Phil Aitken

If you’re wondering the exact answer to tax questions, it’s important to consult with a tax professional. Your realtor can likely point you toward a qualified accountant.

At Your Home Sold Guaranteed Realty - Phil Aitken Home Team, we’ve helped many home sellers get top dollar for their homes in Jacksonville, Florida. We’ve been working in the area for years and have developed an extensive network of real estate professionals, including tax experts.

On top of our extensive network of partners, we also offer several unique seller guarantees that can protect your interests during the sale process. This includes our Guaranteed Sale Program, which ensures your home will sell by your desired time frame– no matter what. If it doesn’t sell to a buyer, our team will buy it ourselves for an agreed-upon price. 

Over the years, we’ve received many five-star reviews from clients satisfied with our guarantees, high-quality customer service, and in-depth knowledge of the housing market.

To learn more about our guarantees or work with our real estate team, call (904) 544-5252. You can also fill out the form on this page.

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Phil Aitken, Owner/Broker
Phil Aitken is the Owner/Broker with Your Home Sold Guaranteed Realty - Phil Aitken Home Team and has over 13 years of Real Estate experience. Phil’s faith and desire for his family’s continued security fuel his business growth and leadership. The Phil Aitken Home Team continues to profoundly impact the people of Jacksonville via supporting several faith-based organizations. Phil gives back a portion of every real estate transaction to The Tim Tebow Foundation and Rethreaded. Find Phil's full story here.