It should come as no surprise that when you sell your home, the IRS will be wanting a piece of the action. Unfortunately, death and taxes are a part of life that’s why it is better to plan ahead when you have made such a considerable investment of time and money. When the value of your home increases over time and you eventually decide to sell, any appreciation will be taxed. This is known as a tax on capital gain. When your home sells, the capital gains are said to be realized by the homeowner if you lived in the primary residence for less than two years.
If the property was held by an investor, the IRS will address these gains in differing ways depending on whether the asset was short or long term. there are still many deductions for Investors like cost basis or original purchase price to determine the capital gains. Deductions such as costs of improvements and cost basis can help your bottom line.
Whether you’re a homeowner or investor, have a plan going in. Sit down with a CPA and financial planner, this is after all an investment! A major portion of your business plan should include reducing or eliminating all of your capital gains taxes when it is time to exit a property. Maybe the property has fallen in disrepair. Reaching out to East Tennessee cash home buyers for a quick sale could very well eliminate any potential tax bill for home sellers in Knoxville.
These taxes are capped at a specific limit to restrict the growth of government revenue. Knoxville TN home sellers need to understand how these rate limits on capital gains taxes will affect their investment. A capital gain rate of 15% will apply should your taxable income be at least $80,000 but less than $441,450 for single filers, $496,600 for married filing jointly or qualifying widow(er), $469,050 if you plan to file as head of household, and $248,3000 if you are married filing separately. A rate of 20% will apply to any gain over the top threshold of the 15% rate, with some exceptions. Individuals with significant income may be subject to a Net Investment Income Tax (NIIT). If your capital gains are in the red because of capital losses, the amount of excess loss you can claim is limited as well.
Married vs. Single
In many cases, there is an exclusion available every two years for Knoxville home sellers on capital gains taxes of up to $500,000 over cost basis for married couples filing jointly for single investors. The exclusion is a $250,000 over cost basis. One of the qualifying requirements for this exclusion is that the real estate will have been lived in for a total of two of the last five years as your primary residence, though they need not be consecutive.
You may be required to make estimated payments on your capital gains. It is wise to consult with a tax advisor to ensure you are making the right moves for your investments. Deferrals of capital gains are allowed under a 1031 exchange of like properties. There are strategies that you can put into place to offset these taxes with capital losses. Ensuring you have covered all of your bases means it is essential to have built a strong team of professionals to help guide you because you want to keep as much of your money as possible.
East Tennessee Home Buyers LLC understands just what Knoxville home sellers need to know about capital gains taxes and what you can do to avoid them – sell to East Tennessee Home Buyers LLC or buy a “like-kind” investment from our inventory of great investment properties! At East Tennessee Home Buyers LLC, we make it easy to keep your hard-earned investment profits at work, earning wealth and long-term passive income for you! Call East Tennessee Home Buyers LLC at (865) 935-8680 or send us a message today!