For most consumers, tax law is kind of a grey cloud that looms over all of us but is understood by very few. The same can be said for homeowners who have sold a residential property. Unbeknownst to many is the fact that the taxes you pay post sale depend on a few items.
The first item that has bearing on the status of the sale is your intention when you purchased the home. Most people will buy and sell at least one home in their lifetime. And if it is your family home which you are selling, then most likely there will be no tax due on the profit that you make on the sale of the house. And if the property was purchased as a long term rental unit then you would not be taxed on the profit from its sale. But if the property was bought with the intent to resell it, then you will owe tax on any profit that you made.
Your purchase and selling history count as well. If you have a history of many transactions then you could be considered a property dealer. If this is the case then you will need to pay tax on the profit from the sale of the property. In addition, if you conduct business in the fields of developing properties or construction, the sale will be viewed as a business transaction and not the personal sale of a family home and you will be responsible for the tax. Selling within 10 years of the purchase can also make you responsible for the property tax on the profit from the sale.
As with any aspect of taxes, it is clearly a very delicate process to determine when tax is owed on the profit of a residential property sale. It is always best to seek the advice of a local real estate professional and tax expert before any transaction is completed. A tax professional will be able to tell you the specific benefits and downfalls of selling a property under a wide array of situations. A real estate professional such as Phoenix Home Buyers Group can offer you tax advice as well as information about the current market, the value of your property and options for different types of sales.
In many cases, you will learn that there are advantages to selling property at a certain time or when the market is at a certain inventory level. The current market is low so a seller could expect to be able to sell for a higher price now and to complete the sale more quickly than if the market were flooded with homes for sale. In addition, you might find that seeking a certain type of buyer will offer you a greater profit. If you had been planning to make renovations and invest in costly repairs, selling your property as is to a real estate investor could save you both time and money. They would not require you to make repairs and would offer you current market value knowing that they will make renovations and increase the value of the home prior to reselling it. Getting professional advice can help you make a well informed decision about taxes and the overall process of selling your property.