Looking to sell a property? Then it’s in your best interest to get acquainted with the way tax laws are going to affect your sale. Otherwise, you may end up being unpleasantly surprised by the results!
The financial burden of taxes
When people want to sell a home, they often assume that they’re going to make a lot of money. And that may very well be true. But there are usually a bunch of financial factors they’ve forgotten to consider. These, of course, become very important when it comes to sussing out how much profit you’re going to walk away with. Taxes invariably result in a big dent in overall profit. They also introduce a lot of complexity. The complication that comes with taxes in this area is why so many people decide to sell homes for cash. It makes the process that much easier. It’s also ideal if having the property in question has, in itself, become a burden!
Capital gains tax has been in the United States tax code since… Well, since the tax code was created! No-one likes it, but it’s a reality that you’re going to have to face. Capital gains tax is actually a lot more complex than people think it’s going to be – and people rarely go in assuming it’s going to be easy! Basically, capital gains tax is a tax on the profit you make from the deal. It’s usually relative only to the ‘gain’ amount. But this explanation only scratches the surface!
Transfer of ownership
So how did you get the property? If you didn’t actually buy it, then the IRS are going to be very interested. If the ownership was transferred to you without a monetary transaction, then you have to deal with this tax. Inheriting a property is probably the most obvious way in which you may find yourself in such a situation. The IRS are going to want a big chunk of the value if you end up selling the property.
You might be protected if the property is worth less than $1 million. A penny more than that? And you’re likely to be taxed at around 55%. You thought capital gains tax was unpopular? It’s Brad Pitt compared to this tax.
So let’s say you’re looking to sell the property and get one for a similar purpose as the previous one. In this case, you may actually be able to avoid tax completely. However, this will actually involve an exchange. The owner of the property you want must be willing to exchange it for the property you currently own. This is known as like-kind property exchange. The stars rarely align to allow for this, but when they do, you can save tremendous amounts of money.
Working with an adviser
The tax laws that come into play when you sell a property are incredibly complex – more so than this article can realistically cover. That’s why it’s really best that you work with a financial adviser during this process. They can help you get the best deal out of any tax gauntlet you have to run through in order to sell a property.