Whether you are moving into a bigger home after outgrowing your starter home or downsizing, selling your home in Charlottesville VA is just as major a life decision as buying a new home. Selling the place you’ve called home for many years is a huge deal, especially when you start figuring out the taxes involved in a home sale.

If you are selling a home for the first time, you probably are wondering if you have to pay taxes on the sale of your home. Knowing how much taxes you need to pay—if there’s any—is important when selling a home because it will impact your finances for the many years to come.

In this article, you will discover everything you need to know about the taxes on selling a house, including tax breaks, reduced exclusions, reporting your home sale on a tax return, and determining the total profit of your home sale.

When you sell your home, you may be required to pay taxes on the money you earn from the sale. The good news, however, is that there are certain exceptions that may result in you paying very little or no tax at all.

Read on if you want to know if you owe taxes on the sale of your home.

Are You Required to Pay Taxes When Selling Your Home in Charlottesville VA?

As I said, there’s a chance you will have to pay taxes out of the money you earn from your home sale after you’ve sold your home. However, there’s also a chance for you to pay very little or nothing at all.

If you have lived in your home for two of the five years directly before you decided to sell it, the first $250,000 of whatever profit you make on the home sale is free of tax. This amount increases to $500,000 if you are married and you and your spouse file a joint tax return.

Note, however, that what we are talking about here is the first $250,000 (or $500,000) of the profit you make and not the income, so that means the tax is based on what you gain from the home sale and not on the total amount of money you make from the home sale.

There’ll be quite a bit of difference if you sell your Charlottesville golf home for less than $250,000 more than you purchased it for and if you’ve lived there for at least two of the previous five years. In that case, you don’t owe any taxes on your home sale.

How do you determine the profit on your home sale?

Now that you know when you need to pay taxes on your home sale, the next question is how do you determine the profit you make from selling your home? Remember, calculating your profit is necessary to determine if you owe taxes on your home sale. It may sound easy as pie, but calculating profit from a home sale is not as simple as subtracting the price paid from the sale price.

To determine your profit, the first thing you need to do is to figure out the cost basis for your home. As you do this, consider not only the total amount that you spent when you bought your home but also the amount you spent on renovations and improvements. If you spent an additional $20,000 when you added an extra room, then you need to add $20,000 to your cost basis.

Once you’ve calculated that, the next thing to take note of is how much you sold your home for. To get that amount, you need to deduct all the fees you paid, including the closing costs and realtor fees when you sold it. That means if you sold your home for $300,000 and paid $10,000 in closing costs and realtor fees, then the amount you earned on your home sale should be $290,000.

Now that you know how much you earned from your home sale, the next thing to do is to subtract your cost basis from this amount. In our example, your profit is $70,000 because that’s the result you get when you subtract $220,000 from $290,000.

Based on the rule, if the amount is less than $250,000, you won’t owe any taxes on your home sale. In this case, $70,000 is less than $250,000, so there is no need for you to pay taxes on your home sale.

How do you qualify for home selling tax breaks?

If we look at the example above, it may look like it’s so easy to sell a home and not to have to pay taxes at all. Actually, there are three basic requirements you need to meet if you want to qualify for the above tax break. Only when you meet these three qualifications will you be eligible for the tax break. Here are the requirements:

·         You must have been the owner of the home you are selling for at least two years. If you’ve been the owner of that home for less than that, then you cannot qualify for the tax break.

·         The home you are selling must have been your primary residence for at least two of the past five years. This is the reason why vacation homes and rental properties usually don’t qualify for tax breaks.

·         You must not have used this tax break for the sale of another home within the past two years. Tax breaks can only apply to one property, so it doesn’t really matter if you are selling multiple properties at the same time.

How do you qualify for a reduced exclusion?

If you don’t meet all of the requirements to qualify for home selling tax breaks, there’s still hope. Through a reduced exclusion, you still get to claim part of the tax break even if you are not totally eligible for the tax break. For instance, if the requirement is that you’ve lived for at least two years in the house you’re selling but you’ve only lived in your home for one year, you could still be exempt—but only for $125,000 of any profit you make from your home sale.

It isn’t that easy to qualify for a reduced exclusion though. To qualify for this benefit, you need to present a valid reason for not being qualified for the tax break. Examples of valid reasons include employment change, health reasons, or any unforeseen circumstance that leaves you with no other choice but to put your home on the market sooner than expected.

How do you report the sale on your tax return?

Unless you assure your real estate closing company that you will not owe taxes on your profit, you will receive a Form 1099-S when you make your home sale. Here is where you will report your home sale. If you happen to receive this form even when you are qualified for the tax exemption, you’ll need to report your home sale even if it doesn’t necessarily mean you owe taxes. Any profit that goes above or does not qualify for the exemption is taxed as a capital gain. 

So how do you avoid capital gains tax on your home sale?

Considering the factors needed to qualify for a tax break, here are the three important things you need to do to avoid having to pay taxes on your home sale:

1.   Live in your home for at least two years before selling it

This is easy to do, since the two years don’t necessarily have to be consecutive. Selling in less than a year will cost you a lot because you could be subject to the short-term capital gains tax, which is higher than the long-term capital gains tax.

2.   Verify whether you actually qualify for an exception.

If you have a taxable gain on the sale of your home, you can still exclude some of it if you have a valid reason for selling your home sooner than anticipated.

3.   Keep all the receipts for your home improvements.

Remember that the cost basis of your home does not only include what you paid to buy it, but also the improvements you have made over the years. The higher your cost basis is, the lower your exposure to the capital gains tax is. Examples of things that can cut your capital gains tax are remodels, new windows, new driveways, air conditioning installs, expansions, etc.

In conclusion, the question of whether or not you need to pay taxes on the sale of your home depends on your qualifications. While it’s possible you’ll need to pay taxes on your home sale, chances are you won’t have to, if you meet all the three requirements we’ve discussed.

By meeting just a few simple requirements, you can get up to $250,000 of your profit from your home sale tax-free, and this can even jump to $500,000 if you and your spouse file jointly. 

Please be sure to check with your financial advisor, CPA or tax consultant to see how the sale of your home best fits in with your financial plan and what tax benefits you may qualify for.

If you are selling your home in Charlottesville VA and you need someone to assist you with your home sale, call me, Pam Dent, at 434-960-0161 today.

Selling a house is a process so complex that whether you are a first-time home seller or not, you will probably have a bunch of questions as to how to go about it. In this article, you will learn the answers to those questions and more as I prepare you for your home sale.

What are the things you need to know before selling your home?

When it comes to selling, knowing the value of your house and exercising patience and restraint are crucial. Before you put your house on the market, get it appraised by a licensed appraiser and/or a broker price opinion from a real estate agent so you can price it right. If you don’t want complications during your sale, you may also deem a home inspection necessary. As you discover issues during the pre-sale home inspection, you will have more control over how to handle these problems.  Many sellers choose to fix those deficiencies before putting the home on the market as they may come up later during the buyer’s home inspection.

If you uncover problems with your home during a home inspection, it is essential that you familiarize yourself with the disclosure laws in your state to avoid future litigation. While these laws generally require sellers to disclose either verbally or in writing, the presence of hazardous materials in your home or flaws in construction, they vary from state to state. It would be best if you consult a real estate agent, a lawyer, or your local housing authority if you are not sure of what you need to disclose to potential homebuyers.

Another thing you need to remember as a seller is that patience is key. I won’t argue that agents like us express concern that homes can go stale after lingering on the market for too long because that means they are not attractive enough to draw interested buyers. However, a stale sale usually results from a seller overvaluing his or her home. In some cases, the opposite can occur: in a rush to find a buyer, a home is undervalued. That’s the last thing I will ever wish to happen to you.

Lastly, if you’re able, try marketing your home and getting it under contract before you buy a new one. This is because if you buy a new one without having a sure buyer for your previous home, you may end up paying two mortgages at the same time.  Also many sellers will not accept a contract with a home sale contingency, but will accept one that is contingent on the successful closing of the buyers home that is currently under contract.

Do you need a real estate agent to help you sell your home?

Now that we’ve gone over the basics of selling a home, let’s consider an old debate: Do you need a real estate agent to assist you with your home sale?

If you’re selling your home this year, you’re lucky. Every passing day, the internet makes it much easier to sell a home without an agent. Despite that, however, most successful home sales are still done with the help of a real estate agent usually resulting in more money for the seller.

If you are selling a home in Charlottesville, VA, here are the many reasons why you should hire an agent.

·         Education and experience

RealtorsⓇ like us understand how complicated home selling can be. If you are new to home selling, you may be overwhelmed by the process and all the paperwork involved, so it helps to have someone experienced to assist you every step of the way.

·         Saves time and energy

If you have an agent, you will not have to do everything by yourself. This will help you save time and energy since you won’t have to spend time scheduling and conducting tours of your home, which usually cut into your work or weekends.

·         Discerning serious from non-serious buyers

Since we are experienced in real estate, we can easily distinguish between serious homebuyers and not. If you sell your home without an agent, it may be difficult for you to discern whether a buyer is really interested in buying your home or is simply looking.

·         Understanding  the market

As a seller, it is imperative that you understand the market before you sell your home. A good agent knows the market and understands trends, so rest assured that I can help your bottom line.

·         Negotiation

Not all home sellers have the ability to negotiate. Negotiation is a skill, more than anything else. If you hire me as your agent, you can take advantage of my negotiating skills to help you get the best price for your home.

·         Professional network

Selling a home is a multifaceted process, and it usually takes more than just an agent to make the transaction successful. My contacts with other real estate industry professionals like contractors, inspectors, landscapers, and the like can help you solve whatever problem you may encounter as you go through the home selling process.

·         Realtor only open houses

Agents like us conduct open houses just for buyer agents. During these events, buyer agents come often in groups and check out the house. Because this is usually just a quick process, it is more convenient for the seller than conducting a traditional open house.  The agents are looking at the home to decide which of their clients could be a good fit for your property.

What should you do before selling a house?

Whether you are relocating for work, making room for your growing family, downsizing, or moving to a more desirable neighborhood, you will need to take steps to ensure that your house is ready to sell. Regardless of the season or current economic conditions, there are several strategies you can use to help sell your home fast. Here are the things you need to do as you prepare to sell your home:

·         Research your local housing market

If you’ve lived in your current home for a long time, then you probably have a general idea of the housing prices in your neighborhood. Despite that, it’s still best to do some research on housing activity in your area. One good source for local and regional housing statistics is the National Association of Realtors (NAR).

As you do your research, search for comparable homes in your neighborhood so you’ll have a general idea of what the competition looks like. Examining the number of bedrooms and bathrooms and other features are essential when seeking out comparable properties. You can also visit open houses if you want to go the extra mile in reviewing similar properties.  Your real estate agent can also perform a comparable market analysis to assist with pricing.

·         Boost your curb appeal

As a seller, remember that for homebuyers, first impressions always last. Although significant landscaping updates are not really a major factor in a homebuyer’s decision making, it helps avoid anything that could detract him or her from that positive first impression.

·       Declutter

Getting rid of the clutter includes removing all personalized photos and other knickknacks. This step does not necessarily require a major renovation of your home—just a fresh coat of paint and some minor repairs are enough. Also decluttering and perhaps removing some items of furniture can contribute to making the rooms seem more spacious. Remember that your goal is to leave potential buyers with a good first impression, so don’t set a showing unless you are confident that your property looks clean, fresh, and well-kept.

·         Set a reasonable asking price

Pricing your home right from the start is important if you want to attract buyers instantly. Do not make emotional decisions by anchoring your asking price to the previous value of your home. Instead, stick within reasonable price limits to attract more offers.

·         Prepare all necessary documents

Preparing for a home sale isn’t just about preparing your home for sale but preparing yourself for future inquiries as well. Because of this, you must be ready to present all the documents that potential buyers, your listing agent, or lawyer may request down the road.

Marketing is important

Marketing your home for sale is more than just putting a sign in the yard.  You will need professional quality photographs. Buyers will be looking at your home on the internet before making the decision to come see it in person.  Good photographs are key. You may also want to have aerial photos or a drone video depending on the property. Your real estate agent will be able to put your property into the mls and will market it to other real estate agents.  It is important that all of the area agents are familiar with your home so that they will show it to their clients. In addition to the mls, your home will be added to numerous internet sites.

·         Market your home on social media

Giving your home as much social media exposure as possible is necessary to reach potential buyers. You can expose your home to potential buyers by listing it on popular real estate websites, uploading YouTube videos of your home, joining Pinterest groups, and blogging. Facebook is also a valuable site if you want to get the word out that you are selling your home.

While it is true that selling a home can be stressful, there are things you can do before selling your home that will definitely make it easier for you to seal the deal. These things require very little effort, but only if you have a trusted real estate agent behind you. If you need a real estate agent you can trust in Charlottesville, VA, feel free to contact me, Pam Dent, at 434-960-0161 today.