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What Taxes Do I Pay When Selling My House?
Selling a home is a challenging decision, whether you are doing it for the first time or you have sold properties before. The home-selling process may also be confusing, especially when you have to deal with factors that affect your finances. One of these factors is taxes. If you are currently selling a home and want to know more about the taxes that you have to pay on the profit you make from selling your property, We Buy Dallas Houses has prepared a brief guide with the information you need.
Do You Have to Pay Taxes on a Home Sale?
The general rule is that everyone who is selling their home has to pay taxes on the profit they make. However, there are certain exceptions that allow you to either reduce or eliminate the taxes completely.
For example, if you have lived in your home for at least two years, and now you want to sell it, the first $250,000 are tax free, which means you do not have to pay any taxes on this amount. For those who are married and filing their taxes jointly, the tax-free amount is $500,000.
It is also important to know that in order to qualify for this exception, your home must be your principal residence. Your principal residence is the place where you permanently live. It does not mean that you have to spend every minute in your home. Short absences are allowed. For example, it is OK to go on a vacation, but it is not permitted to be away from your home for a whole year.
How Can You Determine the Exact Profit From a Home Sale?
In order to determine the profit you will make, you should first identify the cost basis for your home. This is the sum of the price you paid to buy your property and the cost of any home improvements you have made. For example, if you spent $15,000 on bathroom remodeling and improvements, you should add this amount to your home’s cost basis. However, make sure you save all the receipts from your remodeling and improvement projects.
There are also certain circumstances that may impact your property’s cost basis. For example, if a fire occurred and damaged your home, the amount of money you received from your insurance company to pay for repairs may reduce the cost basis of your home.
After figuring out the cost basis of your property, you need to subtract certain costs from the amount you receive from selling your home. These costs include the realtor’s fee, closing costs, and some other expenses. For example, if the price of your home is $350,000 and the abovementioned expenses added up to $25,000, then the total amount you received from the home sale is $325,000.
The final step is subtracting the cost basis from the total amount you got from selling your home. If the final sum is no more than $250,000, you do not have to pay any taxes.
Applying for a Reduced Exclusion
If you do not meet the requirements described above, you have the option to apply for a reduced exclusion, allowing you to claim a part of the tax break. You can claim a reduced exclusion for one of the following reasons:
- You have certain health issues that make you relocate
- There is a change in your employment (for example, your new job is at least 50 miles from your home)
- There are certain family circumstances that force you to relocate (divorce, multiple pregnancy, etc)
Sell Your Home to a Cash Home Buyer to Reduce the Amount of Taxes
If you want to reduce the taxes you have to pay on the assets you received from the home sale, selling your property to a cash buyer may be a good idea. One of the main benefits of this option is that cash buyers purchase properties regardless of their condition and do not require any repairs or upgrades.
If you are searching for a cash home buyer in Dallas, TX, or any other nearby town, do not hesitate to contact We Buy Dallas Houses. We buy houses in any location and in any condition, and we pay cash. Therefore, if you are looking for an option to sell your house fast and reduce your taxes, you should definitely contact We Buy Dallas Houses. Please visit our website or give us a call for more information.
