Before You Sell: How Home Sales are Taxed
There's a lot more to the process of selling a house than meets the eye. Selling your home can have a heap of benefits for you when it comes to saving money. But you have to know the right tips and trade tricks to capitalize on your home sale.
The following piece will discuss information about home sales, tax tips, home selling alternatives, and other information you'll be able to utilize as a homeowner or home seller. Read through it, and be sure to take advantage of any tips that might help you.
How Home Sales are Taxed
Now, let's start with the information that you're probably wondering about most: how home sales are taxed. You probably want to know if you'll have to pay taxes on the money you get from your home sale. The answer is yes, and no. It all depends on how much you sell your home for and if your profit is enough to make you liable for taxes.
If you sell your home for a gain, your profits are referred to as "capital gain." Capital gain is taxable income if it doesn't fall within the amount the IRS allows for sales. You can exclude up to $250,000 of your gain if you're single and you meet certain criteria. If you are married, the allowable amount goes up to $500,00.
To be eligible for this exclusion, you must:
Have lived in the home for two out of five years
Have owned the home for two out of five years
Have not excluded any other capital gain from a home sale in the previous two years
If you meet all of those criteria, you will be able to sign a form that states you will not have any taxable gain. Signing that form might prevent the real estate agent from sending from 1099-S "Proceeds From Real Estate Transactions" to the IRS and reporting your home sale.
You can, of course, choose not to exclude the income, but not many people do. If you do have to pay taxes on the gain, you may want to consider entering it as a long-term capital gain. You could get a break on the tax percentage if you lived in the home for at least a year.
That's about it for how home sales are taxed. You can handle the sale of your home accordingly with that information.
How to Capitalize With the Funds From your Home Sale
Now you know how home sales are taxed. You may want some information on how you can capitalize on the funds from your home sale. You should always try to earn profits from profits and expand your income even further.
Invest:
Taking some of the money and making a smart investment is one way you can capitalize on your home sale.
You might also want to think about putting some of the money into a high-yield savings account. Stocks are excellent investments right now, as well.
Another option is to invest in real estate. You might enjoy the home selling process and desire to do it more often. You can invest in foreclosure properties, fixer-uppers, and other projects. There is a lot of money to be made in the house flipping realm. You might want to take a course and learn more about it, as it might be an excellent venture for you.
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Tax Breaks for Sellers
You know how home sales are taxed, but you don't know all of the tax breaks you can get even if you've sold your home.
Home Sale Costs
The law says that you can deduct any of the costs associated with the sale of your home. The only qualification is that you lived in the home as your primary residence for at least two years out of the five years preceding the sale. Some of the selling-associated costs you can claim include real estate agent commissions, escrow fees, advertising fees, legal fees, and so on.
Property Tax
You can also deduct the property taxes and mortgage interest that you paid on your home up until the moment you sold it. The IRS will allow you to deduct up to $10,000 of property taxes each year. The mortgage interest cap is high. Therefore, you will most likely be able to deduct the entire amount of mortgage interest you paid for the year.
Home Improvements
Home improvements are other deductions you can take. If you spent money to improve your home's condition, you could deduct the costs on your income taxes for that year. Home improvements might include installing a new HVAC system, adding an extra room, painting the entire home, or putting new siding on the home. It's all deductible. One thing you have to remember about these deductions is that they are itemized. You'll need to make sure that itemizing them will benefit you in the end. It will not benefit you if the total amount of the itemized deductions are less than the standard deduction for that tax year. For example, the standard deduction in 2023 for a single person is $13,850. Go for it if you are single, and your itemized deductions add up to much more than this amount.
Now it’s time to talk about the home-selling process and the alternatives to it.
Alternatives to Selling Your Home
The first thing you have to consider before you sell your home is whether it's the best option. You could have a variety of reasons for wanting to sell your house. Some of the most common reasons are employment moves, job loss, disability, upgrading, and downgrading. You might not have considered the alternatives to selling your home, though, and you really should. A home is a wonderful asset to keep if you can do so because it will build equity that you can later use if you need it.
Have you considered renting your home to someone who might need it? You may also want to consider renting a room or two if you have a large home. The income that you can earn through a room and home rentals can not only pay your mortgage but can also earn you additional income if you set the rental price accordingly. It's even possible for you to own two separate dwellings and earn money while you have your tenants ultimately pay both of your mortgages.
There are other alternatives to selling your home if you're thinking about selling it because of temporary financial problems. Disability and job loss aren't permanent situations. You can speak to your mortgage provider and request a deferment or forbearance if you're having trouble keeping up while you're disabled. You can also ask for a loan modification if you feel that your mortgage payments are too high. You never have to fold and sell unless it's something that you want to do because you feel it benefits you more than other options.
Think about the options you have before you put your home on the market. Proceed if you feel like you've exhausted all other options.
The Best Ways to Sell Your Home
You have several options for selling your home:
Home Realtor
Investor’s Company
You can visit a traditional realtor if you want to use the most conventional home selling process. If you hire a realtor, that person will be responsible for marketing your home to potential buyers, showing it to interested parties, and so forth. You will have to pay a commission if you sell your home with a realtor's assistance. The commission amount will vary across realtors, but it will involve a portion of what your home sells for.
A general percentage might be something like six percent of the sale price. Therefore, you will have to pay the realtor $6,000 if you sell your home for $100,000. You will be responsible for making any upgrades to the home that might help it to sell faster if you choose a realtor. The good part is that you won't have to do much work, and your realtor will display your home to many people every day. This might be your best option if you don't mind waiting weeks or months to sell your home.
Another option you have is to go directly with an investor's company. Some companies exist just to buy homes from homeowners quickly. Some of them intend to fix and flip the homes, while others intend to use the homes for passive income. What's important is that these investors will usually offer you something for your home within 48 hours, and you can close a deal and receive your cash within seven days if everything goes well.
The benefit of using this route to sell your home is that you won't have to pay a commission. Furthermore, you most likely won't have to put any more money into your home to spruce it up before you sell it. Homebuying investors are masters of buying homes that need a little TLC. Their offers are usually fair, as well. Consider this method if you need to sell your home quickly because of a work start date that was set in stone or some other obligation you might have.
How to Make Your Home Sell Faster
It's important for you to do everything you can to make your home more desirable to prospective buyers. These are a few tips that might be helpful to consider before you put your house on the market.
Make Sure Your Asking Price Is Fair
First and foremost, you have to make sure that you offer your home at a reasonable price to prospective buyers. Asking for too much will delay the sales process. You don't want to rob yourself of potential income, either. You can find a happy medium by conducting research to see how similar homes have faired in the market. You can also have your home assessed so that you know its true value. Come up with a figure that's appealing to the masses but also gives you a generous return on your original investment. The lower you can go, the faster you can sell your home, potentially. Keep that in mind.
Accept All Forms of Payment
A lot of sellers prolong the process because they are too stringent with their requirements for buyers. For example, some sellers exclude buyers who finance through FHA loans. You can accelerate your home sale if you include as many forms of payment into your deal as possible. You might even want to consider owner financing if you can afford to do so. You will have to check your buyer's credit to ensure that you will receive your payments in a timely fashion, but it's an option for you. Your pool of interested parties will increase as you make more options available to all of them.
Invest in Some Renovations
Don't be afraid to throw a little money down to jazz your home up a bit before you put it on the market. You don't have to spend thousands of dollars to do that. You could do something simple, like having some landscapers create a more appealing outside look. You could invest in carpet cleaning or upholstery renovations. You may want to buy some paint and give your rooms a little more life. Anything that will make your home stand out from other homes will be an excellent move to make.
Create an Irresistible Listing
Your home listing is one of the most important aspects of moving your home quickly. Three elements of your listing will draw people in: the price, the pictures, and the description. We already spoke to you about making sure the price is good. Now, you want to make sure that you post flattering pictures of your home on the site, and you also want to have words in your description that compel prospective buyers to take immediate action. You can hire a professional marketing company to come up with this information or create it yourself. It's a huge piece of the puzzle. Therefore, you need to put a lot of effort into it.
Make Yourself and the Home Available
Availability is the key to closing a successful sale. You need to make sure that you are available at all times to talk to potential buyers. At the very least, you need to make sure that someone is available to talk to them and show them the home. You can't afford to miss even one home showing during this crucial time. The one you miss might be the one that was going to close. You'll regret it if you miss it.
The Best Time to Sell Your Home
Selling your home at the best possible time is important. There are three times that are better than other times to sell your home. You must consider the area you live in to find the right time, however.
1. Summer
Summertime is an excellent time of the year. Lots of people move during the summer so that they can get settled in before school starts.
2. Early Spring And the End of Winter
This is a great time to sell because of tax refunds. People use a tax tracker and receive their refunds in February and March.
They're much more likely to purchase a home if they have a lump sum of money on hand from their income taxes.
3. End of the Year
Selling at the end of the year might be good for your personal finances. You can most likely take advantage of many of the "homeowner" tax advantages, even if you sell your home in the last six months of the year.
Consider all of those things when deciding when to sell your home.
Don't Hesitate to Call Us
Now that you've gone through this piece, you should be more educated about how home sales are taxed, the home buying process, and how taxes can work for or against you. Don't hesitate to contact us for additional assistance, however. We are a consumer advocate that operates within the extended realm of personal finance. We are not a lender, but we're connected to a huge network of lenders who can help you obtain a home loan or some other type of loan you might need. You can certainly speak to us if you're on the market for a new home or you need to refinance your current dwelling.
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