There are many unanswered questions about the property taxes and what they are based upon. Another tax related to selling a house is capital gains. It seems the amount of capital gains tax on a property depends on how long the owner has lived there.
One woman’s situation was as follows: She sold her townhouse for $375,000 and did not have a mortgage owed to the bank. She hadn’t occupied it within the five years prior to the sale. She put money into home improvements with the hope of receiving a claim on income taxes for the coming year 2013.
She faced only disappointment. Due to the fact she had not been residing in the house for five years, she would owe capital gains tax. If she had lived there for at least two of those years, she would not have owed capital gains tax unless she reaped profits over $250,000 if she was single. The limit is $500,000 for a married couple. It is unfortunate that she didn’t read free publications offered by the Internal Revenue Service. There are informative documents called “Selling your Home”, “Tax Topic 409” and “Capital Gains and Losses” and Residential Rental Property”.
She would have been aware of the edict that she must live in the residence two out of the five years before she sold the property to avoid paying a capital gains tax.
Due to the fact that she lived elsewhere the entire five years preceding the sale, capital gains tax would be assessed on her taxes. She was unaware of this requirement and would pay tax based on how much of a profit she made on the sale. Profit and cost are gauged based on comparing the sale price to how much money was invested in improvements. The cost is deducted from the final sale price to arrive at a figure for taxation purposes.
Calculations for the purpose of figuring how much she had to pay would be as follows: Sale price of residential property and original purchase price (she paid) plus a commissiong charged by the realtor, a title search and whatever local fees are required. If she had spent $75,000 on improvements and updates there would be zero profit leaving her owing no capital gains tax.
The figures are never that conveniently neat, however. Let’s say she made $100,000 in profits on the sale of the house. She would pay at the current rate, which would be in the neighborhood of 20 percent. If so, she would pay $20,000 in federal capital gains taxes, plus whatever her state charged in state taxes.
Depending on her total income, she might owe extra on the profits and also be assessed 3.8 percent Medicare tax. There is another publication available to explain that tax.