It’s the wonderful time of year that we all look forward to (not really)….tax time! If you are selling a house in Kansas City, you will love these tax tips for selling your home! This article is not official, legal tax advise and is only for entertainment purposes.
For specific questions, contact a trusted tax professional, or the IRS!
Not All Profits Are Taxable
Many people don’t know, but profits from selling a home can be tax free as long as you meet certain conditions. You will be able to exclude up to $250,000 per person or $500,000 profit per couple. (However, if you sell for a loss, you won’t be able to take a deduction for that amount.)
The deduction is only available when selling your primary residence, and can only be used once every two years. To qualify for the deduction, you must have lived in the residence for at least two of the past five years.
It is important that whenever you move, your address is updated with the IRS.
Even if you don’t meet the above criteria, there are still other ways to exclude some profits from the tax man. There are actually quite a few reasons the IRS allows you to take a write-off. A change in your health, a job change or other unforeseen circumstances are some of the reasons the IRS allows.
Reporting the Sale
You will definitely need to report the sale of the home to the IRS if the agent gives your a 1099-S. This form provides the IRS with information regarding the proceeds from real estate transactions. You may not need to report if you can exclude all of the profits from the sale. Then, let the agent know that you will not need a 1099-S. Even if you are able to deduct all profits, if the form is issued, you will still need to file it with the IRS… even if no money is owed. We recommend just reporting and not trying to hide things in the first place however.
Capital Gains Taxes
If you are selling an investment property or house you have only owned briefly, you will likely be subject to the capital gains tax. The rate of capital gains tax depends on how much you make as a tax payer overall. If you have a lower income, you will pay no capital gains taxes. People in higher tax brackets can pay upwards of 20%. Those are the long-term capital gains tax rates, but if you’ve owned the property less than a year, you will owe short-term capital gains tax rates equal to your normal income tax rate.
First-Time Homebuyer Credit
Depending on the dates you bought and sold, you might have to pay back all or part of the credit you received. Typically if you move within 36 months of purchasing the home, the credit must be paid back upon the sale of the home. Special rules apply and can be found in Publication 523 from the IRS.
Deduct Selling Costs
When selling your Kansas City house, you will be able to deduct any reasonable cost when selling your home. This includes the closing costs, improvements made in order to sell the house, assessments, marketing costs, agent fees and so on. You’ll want to keep detailed records of all of the expenses that you garnered while trying to sell the property. This can add up to big refunds come tax time!
These are some of our tips for navigating the complicated landscape of taxes when selling property. As always though, make sure that you are getting the advice of qualified professionals such as tax professionals, CPAs, and attorneys.
Don’t stress too much about taxes when putting your house up for sale in Kansas City. Odds are Uncle Sam won’t be getting his hands on your profits, especially if you’ve owned the home for a little while.