Selling your home is one of the biggest decisions you can ever make. However, before you do that, you should figure out how to report the profit made from this transaction. That’s because the decision directly impacts your financial plan. You must carefully hand the windfall of cash and extra taxes arising. Things that you need to know about include reduced exclusions, tax breaks, and how to file a tax return for the house sale.
DO CASH HOUSE SALES ATTRACT TAXES?
When selling your house for cash or any other means, you may have to pay taxes on the money earned. However, some exceptions exist that may see you pay little to no taxes.
For anyone who is single and has lived in the house for two years before the house sale, the sale remains tax-free for up to £205,000. The tax-free amount increases to £410,000 for couples who file a joint tax return.
One thing you must note is that the figure taxed is the profit and not the income. That is, the taxable amount is equal to the total amount made from selling the house minus expenses. In other words, it is equal to the initial purchase price minus the current selling price. You will not have to pay any taxes if you sell the house below $250,000 and you have lived in it for less than two years of the past five years.
CALCULATING YOUR PROFIT FROM HOME SALE
As you’ve seen, anything to do with taxes on the cash home sale comes down to profit. When you determine the profit, you get to know whether or not you owe taxes from the house sale. However, the calculation requires you to consider more factors as opposed to just buying price from the selling price.
Start by getting the cost basis of your home. Get a sum of the total amount spent on building or buying the house and all the improvements done on the home. With that done, get the total amount at which you sold the house. One of the advantages of selling your house for cash is that you cut down on other fees like agent rates or closing costs. Thus, your selling income may be higher.
To get taxable profit, take the amount earned from the sale and less the cost basis. If the resulting profit is less than $250,000, you do not owe any taxes.
GETTING HOME SALE TAX BREAKS
You can qualify for a tax break from the home sale under the following conditions:
- You must have owned the home on sale for more than two years. Ownership running for less time does not qualify for a tax break.
- The home has been your primary residence for at least two years in the past five years. Thus, you cannot put up second homes like pure rental properties and vacation homes for a tax break.
- You haven’t used the tax break to sell another home within the last two years. Therefore, if you have multiple houses to sell, the tax break will only apply to one.
Meeting these benefits translates to more income from your cash home sale.
Contact REGGIE BUYS when selling your home for cash and feel confused about the taxes. Learn more about selling your house without a burden.
