Have you ever thought about the tax consequences of selling a Reno area house?
When selling real estate, it often means big sale proceeds. Unfortunately, huge portions of your cash may need to be paid to good old uncle Sam. The tax implications of the sale of your home may be the determining factor on whether you should sell at all.
Plan ahead. When you sell your property, you don’t pay taxes immediately upon the sale. That comes in April and you must report it on your taxes. If you spend the proceeds before tax season, you could find yourself owing the IRS money.
Get all the tricky issues straightened out before you conclude the sale.
This post will tackle a few tax tips regarding selling your Reno area property, including the “Capital Gains Tax Exemption”, reporting issues, the first-time homebuyer credit, and selling cost deductions. For specific questions, of course, consult with a qualified accountant or the state/federal taxing agencies.
Capital Gains Tax Exemption – Not All Profits Are Taxable
When selling your property in the Reno area, you can exclude a high portion of your profits given specific conditions are met. Typically, can exclude $250,000 from your tax return, and up to $500,000 if filing a joint return. (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. To qualify for the deduction, you must have lived in the residence for at least two of the past five years.
Other Tax Exclusions
If you do not qualify for the “Capital Gains Tax Exemption”, you might still be able to exclude a portion of your profits from your income taxes. There are many special conditions you can meet in order to receive a prorated, tax-free gain. If you need to sell because serious illness or health changes, divorce, a family death or your job moving more than 50 miles away count as unforeseen circumstances you will be able to write-off a portion of the profit
Reporting the sale for your Nevada property – You will need to report the sale if you receive a 1099-S form from the title company. Form 1099-S is used to report gross proceeds from the sale or exchange of real estate and certain royalty payments. A 1099-S form must be provided to the recipient and a copy mailed or e-filed to the IRS.
This form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits. Let the title company know at the time of closing that the form will not need to be issued. 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.
Capital Gains Taxes
If you are selling an investment property or house you have only owned for a short time, you will likely have to pay the capital gains tax. A capital gains tax is a type of tax levied on capital gains, profits an investor realizes when he sells a capital asset for a price that is higher than the purchase price. For example, you parents purchased a house for $100,000 in 1980 and passed away in 2019. The was left the house to you, so you decide to sell it, not living in the home for the required time. At the time when your parents passed away, the home was appraised at $250,000 and you sell it at $300,000. Because Nevada has a “step-up in basis“, you would be taxed on the $50,000 instead of the $300,000.
Capital Gains taxes are dependent on how much you make. If you have a lower income, you will pay no capital gains taxes. People in higher tax brackets can pay upwards of 20%. Keep in mind, short-term assets, such as real estate, are typically taxed the same as ordinary income.
First-Time Homebuyer Credit
Depending on the date you bought and sold the house in the Reno area, you might have to pay back all or part of the credit you received.
Typically if you haven’t move within 3 years of purchasing the home, the credit must be paid back upon the sale of the home.
According to the IRS, “The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.” There are special rules that apply and those can be found in Publication 523 from the IRS.
Deduct Your Selling Costs
You may be able to deduct any reasonable cost when selling your Reno area house.
This includes the closing costs, any improvements made in order to sell the house, assessments, marketing costs, and agent fees. Keep track of every penny you spend in an effort to sell your home. It could add up to huge saving on next years taxes!
No matter what time of the year you sell, don’t forget to seek the counsel of professionals. Consult your accountant and/or attorney to make sure you have set up the best terms for yourself.
Don’t stress too much about taxes when putting your house up for sale in the Reno area. Odds are Uncle Sam won’t be getting his hands on your profits.