Are you wondering, “How can I sell my house fast in Upland and enjoy a handsome profit?” Before you list your house on the market, there’s one crucial factor that you’ve got to know about—capital gains taxes.
While you may expect to make a significant profit by selling your home, the IRS claims some of the money, which cuts into your profits. The money you make from selling a home, be it in Upland or elsewhere in California, is taxable, and you have to pay your dues to the IRS.
Fortunately, there are ways to minimize the taxes you pay while selling your home. Continue reading to know more about capital gains taxes and how you can avoid a large tax on the sale of your Upland home.
What Is Capital Gains Tax?
The profits you make from selling an asset like a home, car, stocks, or bonds incur a potential capital gains tax. Capital gains are classified into two types:
- Long-term capital gain is when you sell an asset you’ve held for more than one calendar year.
- A short-term capital gain occurs when you sell an asset within one year of purchasing it.
Generally, short-term capital gains attract higher taxes compared to long-term capital gains.
When Do I Have to Pay Capital Gains Taxes on a Property?
It’s important to note that capital gains taxes kick in only when you sell a property for profit. With homes, you have to sell your home for more than its price when purchased. For example, if you bought your home for $200,000 five years ago and sell it today for $350,000, your profit from the sale is $150,000. You have to report this profit as capital gains and pay taxes. Generally, capital gains taxes vary between 0% and 20%.
Can I Avoid Capital Gains Taxes When Selling My House?
It’s possible to avoid capital gains taxes when selling a home. Here are a few legal ways to minimize these taxes:
- You have lived in the house for at least two years in the last five years. This exemption is commonly referred to as the “two out five rule” in real estate. If you sell a home that you didn’t live in for at least two years, then the gains from the sale are taxable. Also, keep in mind that selling a house within a year of purchasing attracts a higher short-term capital gains tax.
- Check if you’re eligible for an exception. Even if you have made profits from the sale, you might still qualify for an exception if you sold the house for health reasons, work, or other unforeseeable events. Go through the IRS Publication 523 to get a complete list of permitted exceptions.
- Save the receipts for home improvements. The cost basis of your home is calculated based on the amount you paid to purchase it and the improvements you have made over the years. If the cost basis is higher, the profits are lower, and your capital gains taxes are lower. Whenever you make any home improvements like a remodel, adding fencing, updating landscaping, or installing air conditioning installs, keep on to the receipts. This step can cut down on the capital gains taxes when it’s time to sell your home.
No one wants to pay a massive tax on the sale proceeds of their home. Make sure to understand the different capital gains tax rules to make the right decision during the sale of your home in Upland.
If you’re looking for an easy and hassle-free way to sell your Upland home, reach out to Diamond Home Buyers Inc. We buy houses in Upland for cash and can help you enjoy a profitable sale. Connect with our team to learn more about our process and get a free, no-obligation cash offer on your Upland home today!