If you’re like most home sellers, tax season is the most stressful time of year for you. Not only are you busy with work, hobbies, and trying to keep your social life afloat, but you also have to worry about paying taxes on the sale of your house. However, you shouldn’t worry because most sellers don’t have to report their sales to the IRS.
Of course, there are usually exceptions to any rule. Keep reading to find out which home sellers must report to the IRS in Texas.
Know the Two Main Rules
Even if you don’t work in real estate, there are two rules related to the taxation of a home sale, which is the “old rule” and the “new rule.” Firstly, the old taxation rule states that up until 1997, sellers in their 50s had the option of excluding up to $125,000 of gain on their sale if it’s their principal residence. On the other hand, the new taxation rule states that sellers of all ages can omit approximately $200,000 or roughly $500,000 for a married couple filing jointly.
It’s no secret that home sale taxes can be headache-inducing, especially if you’re not familiar with real estate. Stay tuned to learn more about the ins and outs of property taxation.
Commonly Asked Questions
Q: Which homeowners are eligible for tax-free gains on the sale of their home?
A: To qualify for the tax exclusion on your home sale, you need to comply with the following criteria:
- Take the ownership test, which proves you’ve owned your property for at least two years.
- Take the use test, which shows you’ve used your property as your main residence for no more than two years. However, if you rent out your house for half of the year, the amount of gain you can omit will be proportional to how much you use it versus rent it.
- If, during the two-year period, which ends on the date of your sale, you didn’t prohibit gain from the sale of other houses.
Q: What if I own more than $200,000 in gains?
A: If you’re in this situation, the IRS will give you a tax bill for the number of gains above $200,000 or $500,000 if you’re filing jointly. Keep in mind that they might tax it by applying the capital gains tax rate. It’s best to keep receipts and records of home improvements you’ve made to reduce your amount of taxable gains. At the same time, you can add certain modifications to your costs, which may reduce your amount of reported gains.
Q: What if I’m a new homeowner?
A: If you’ve been a homeowner for a few weeks or months, gains that surpass the excludable amount are taxed at a rate that mirrors your average state and federal taxes. On the other hand, if you’ve owned your house for decades, the capital gains tax rate may apply; this amount may be less than your standard income tax.
Q: What else should I keep in mind?
A: It’s crucial to remember that if you experience a loss, which occurs when your home’s value is worth less than what you paid in the beginning, you won’t be able to mark it as a tax deduction.
Overwhelmed? Texas Sell Now is Here for You
No one looks forward to filing taxes, and if you plan on selling your home soon, you might be stressed out. If you reside in Fort Worth or Dallas, Texas, you can sell your house to Texas Sell Now for a speedy, all-cash offer. We’re ready to buy your home, regardless of its condition. Reach out to us today.