Here's a typical scenario. Brian in Louisiana has owned and lived in his house for three years. He plans to sell the house for $150,000, and he bought the house for about $105,000. Brian asked, "What kind of taxes do I have to pay when selling? I know have to pay realtor fees, but what, if any, other taxes are applicable?"
There may be transfer, stamp, or property taxes to be paid when selling a house, and those taxes are listed in detail on the settlement statement prepared by the title company during escrow. However, there should be no federal income taxes. The tax code allows taxpayers to exclude up to $250,000 in capital gains ($500,000 if married), provided that the taxpayer has owned and lived in the property as their main home for two out of the past five years.
In Brian's case, his capital gain of approximately $45,000 would be completely tax-free since he has owned and lived in the house for three years.
Taxpayers who are selling their principal residence before meeting the two-out-of-five-year rule should consider determine if they qualify for a partial exclusion of their gains. The tax code allows taxpayers to exclude a portion of their gains if they are selling to relocate for work, for health concerns, for due to unforeseen circumstances. Taxpayers will also want to accurately calculate their capital gains to avoid paying more taxes than they need to.
More information: Selling Your Home | IRS Publication 523 | Code Section 121
Great information. I have a question, though. I’ve lived in my house for 3 years, and my hubby and I are moving out of state with no intention of buying a house again for another ~2 years. Does this change the tax rule as far as our income from the sale of our current home?
No, you can take the capital gains exclusion even if you don’t buy another house.
I bought my home 23 years ago, and married my husband 16 years ago. He and I have lived in it since then. The house has always been only in my name. Can we still make a profit of $500,000 or do I only get $250,000?
I bought an apartment in my native country in 1981, after marriage. It was my main residence until I immigrated in 1995 in US. Then, I divorced in 2000 and sold the apartment in 2007 for E85,000 (approximately $112,000), half being my share. I transferred the whole amount of money in the US. We paid the sale tax, realtor tax and some fees in my native country. Do I have to pay taxes on this sale in the US and what taxes and fees can I subtract from my US income tax ? I didn’t have a job this year 2007, I received only unemployment approximately $8,500 and no W2 form.
Some people gave me a hint about filling out the schedule 2555 and form 1040. What is your opinion?
Thank you in advance for your kind answer.
OK –
We own a house in City “A.” My wife and I lived in this house for about 10 years.
We relocated in January 2008 to City “B” where we rent a house. (Move caused by employment.)
The house in City “A” was rented out in February 2008.
I want to buy a house in City “C” while the market is weak (i.e. on/before June 2008).
Given the current market, I doubt my house in City “A” will sell before end of 2008.
QUESTION: With all the alphabet soup (A, B, C) will I be able to exclude any capital gains on House “A” when it finally sells if I already am in House “C” (or still in the House “B” rental)? Let us “assume” a sale date of June 2009.
If you’ve done work on your house, like putting on a new roof, can you get tex brakes when you sell it?
Peggy, the cost of any major improvements and repairs is added to your cost basis in the house, which in turn will reduce your capital gains when you sell in the future.
Mihai, yes this transaction is reported on your US tax return as well, since US citizens and resident aliens are taxed on their worldwide income. The gain will be taxed as a long-term capital gain at the 15% tax rate since you owned the property for more than a year. If you lived in the property for at least 24 months in the 5-year period ending on the date of sale, then you could exclude the gain of up to $250,000. The taxes you paid to the other country would qualify you for a foreign tax credit on your US return.
Form 2555 won’t apply in this situation, because that form is used only for income earned from employment or self-employment while living abroad.
John, you will be able to exclude the gain on house A if you lived there at least 24 months in the five-year period ending on the date of sale. So assuming a sale date of June 2009, and you moved out on January 2008, you would still have 44 months of use (from June 2004 through January 2008), which is greater than the 24 months needed for the exclusion. Some of your gain will be taxable (based on the depreciation and also based on the non-primary use since January 2009).
I have lived in my home for 5 years, however the house was tied up in trust since my mother’s death in 1990. Just recently (2009) it was removed out of trust and deeded to me. Will I be eligible for the tax exemption if I were to sell in 2010 since essentially I have “owned” it for longer than 5 years and have lived there again as my primary residence for 5 years?
I’m totally confused. We are selling our home for less than we purchased it 3 years ago and less the money we put into it. What kind of taxes (other than property) are we responsible for when selling our house? I live in Philadelphia, PA and someone mentioned a City Tax and Federal/State tax?? Please help.
What if siblings,, who owned the house of their father who is still alive? What type of taxes should we hold out? We usually receive a 3000 fed income tax return…
I am living in Fla and have been for the last 5 years. I allowed my grandaughter to live in my house in Ky while she attended school. After she graduated she purchased the house from me in 2010. Do I have to pay income taxes on the sale of the house?
Judy, the sale of a home is a taxable situation, but whether any taxes are due depends on the calculations. If you owned and lived in the house for at least 2 out of the last 5 years, you can exclude up to $250,000 of the profits. Please review the details in my article on Selling Your Home.
Question: I bought my house in 1999 for $180,000 and lived in it until July 2007. I rented it out ever since from 8/2007 and sold it on 9/2010 for $215,000. So it was rented for more than 3 years. Will I be able to exclude the gain on house or I have to pay capital gain tax? Thanks!
My father helped me buy a home by getting the mortgage in his name, with the plan that when I could get a mortgage, I would buy it from him. So it was NOT his primary residence, nor a rental property for him. I was paying the mortgage myself for the past 3 years.
Now, I am applying for a mortgage, which will be very small ($35,000 or less), showing him profiting $5,000 from the sale (though the extra money is actually not going to him, it’s to remodel the bathroom).
He was told by the loan officer that he’d have to pay several thousand dollars in capital gains tax. I can’t find any information on this particular situation, but several thousand dollars taxes on a $5,000 (on paper) profit seems incorrect. I hope you can advise me !
Your father will report the sale and calculate his gain. His capital gain income for tax purposes will be $35,000 (his selling price) minus whatever he paid for the house. Since he bought the house 3 years ago, this will be a long-term gain taxed at 15%.
If I have lived in a triplex for 3 of the past five years, (lived in one uint and rented the other two) and sell this home do I have to pay capital gains tax? And if yes…can I purchase a home that same year using those proceeds and not pay capital gains tax???
Moved out of my home 5 yrs ago while husband lived there. Divorced last yr. Selling our home. What kind of taxes will I be expected to pay on a $150,000 portion of the sale of the house in Oregon? If I have caretaken the residence intermittently, while paying on a rental? Any help would be greatly appreciated.
i need to sell my summer place in new york state but i am canadien how does the tax works do i pay the gains taxes or does the buyer how does it work ????
Hi i am selling a house that was willed to me 10 years ago i have never lived in it , The house is in CT but i live in Ny how much will i have to pay the IRS for taxes? sales tax? i am selling it for $100.000 thanks
I moved out of our home in 2009 and lived in it since 2003. What year do I have to sell my home until I receive capital gains on the sale of my principal house. It might be sold in 2011 hopefully. Will I have to pay any capital gains tax on the sale of my old residence?
Thanks, Judy
i plan on buying houses and selling them or renting them out right now i am trying to figure out what kind of taxes i am going to have to pay when i do this.
We owned our house for 16 years and then rented it out. How long do we have to keep it a rental before we sell it, and not have to pay capital gains tax? Thank you.