How to Reduce Taxes from the Sale of Property
Hudson, NH Resident Looks to Lessen Future Tax Burden
Profit from the sale of a home will fall under capital gains and be taxed accordingly. If your property has increased in value significantly since the time of purchase, you may be hit with a large and unexpected tax burden. The difference of what was paid for the home initially and the selling price, less closing costs, real estate commissions, and other fees is considered capital gains. If you have lived in the residence for at least two of the past five years you can exempt $250,000 and $500,000 for married couples filing jointly. Any profit exceeding this amount can be subjected to the capital gains tax.
A Hudson resident was looking to sell the home that he had lived in for over two decades. Concerned how the increase in property value would affect his taxes, he contacted the team at Merrimack Tax Associates for advice.
Home Sale Profits are Considered Taxable Income
Since your home is considered a capital asset, the profits from the sale of the property are subjected to the capital gains tax. Homeowners are given an exemption of $250,000 for single filers and $500,000 for married couples filing together. Any profit from the sale of the house beyond this may be considered income and will incur a capital gains tax. Some homeowners will hold on to property until later in life. In retirement they are likely in a lower tax bracket, which can significantly impact the overall tax bill if the property is being sold for a significant profit. It is important to keep in mind that the long-term capital gains rate will be less than short-term capital gains, further incentivizing owners to hold on to the property.
Ways to Reduce Monetary Gains from the Sales of a Home
If you are anticipating a significant profit, above and beyond the exemption, for the sale of a property you can track home improvement expenses. These capital improvements, from kitchen and bath remodels to building a new deck, can be deducted from your remaining taxable profit. The types of repairs that qualify for this deduction are those that were done to add value to the home. Expenses to make repairs and keep everything in good working order are not deductible.
The Hudson resident was pleased to hear learn about the exemption and ability to further deduct home improvement projects that were made. With this information, he can sell the home knowing what to expect when it comes time to file his taxes.