Capital Gains Taxes on 2nd Home SaleDo you pay real estate capital gains tax on the sale of a second house?
Paying Taxes on a Second Home Sale
Nobody wants to pay more taxes than they have to. There aren't many people who want to find a big financial surprise either. It is no wonder so many people will do an online search to see what the tax consequences are for selling a second home. Maximum Real Estate Exposure does an excellent job of covering the this topic in-depth. It will be worth your time to take a look and study it.
We will cover the basics here but for a more comprehensive tax viewpoint make sure you have a look. The first thing you need to know is that tax laws differ when you are not selling your primary residence. The tax code offers some benefits you won't find when selling a second home.
For example, you will not have the $250,000 capital gains exclusion if your single when selling a 2nd home. If you are married you won't have the $500,000 tax exclusion either. Right away without these exclusions, you can count on paying more taxes when it comes time to sell.
What you will owe in taxes is really going to depend on three different factors including the amount of time you have owned the home, your current tax bracket, and how much the property has gone up in value since you bought it (your profit).
How long you have owned the property can be significant in figuring out what you will owe. If possible you never want to sell within a year of owning any property. The reason is you will be tax as a short term gain. When you sell quickly the IRS uses your income tax bracket to determine what you will pay them.
When you have held a property for longer than a year the profit becomes a long term capital gain. Long term capital gains are taxed at which is either zero percent, fifteen percent, or twenty percent.
Based on 2020 tax rules you will pay zero tax if your income is $40,400 or less. If you have income between 40,401 and $445,850 you will pay 15 percent in taxes. If you make over $445,850 you will fall into the 20 percent tax bracket.
If you are married and will be filing jointly you won't pay any taxes if your income is under $80,800. Over $80,800 you will pay 15 percent until you hit an income of $501,600. An income higher than this amount and you will fall into the 20 percent tax bracket.
As mentioned make sure you take a look at the above resource which will break down this information for you in much greater detail. If you find the information helpful, please pass it along.