Are you worried about the tax consequences for selling a Pennsylvania house?
When you sell real estate it can often mean that you’re going to have proceeds from the sale. As you may have heard though, the government can take a very big percentage of that. Sometimes it’s such a big amount that the tax liability and implications can determine whether or not you should sell your home.
The first step is to PLAN. Depending on what time of year you sell your home will depend on how much time you have until your taxes are due. Taxes must be paid by April 15th. If you don’t make sure that you save enough of the proceeds from the sale, you may be unable to pay the amount of taxes that are owed to the government.
Here we’re going to try and lay out some tips for selling your house in Pennsylvania which include how to qualify for a Capital Gains Tax Exemption, how to make sure you deduct all applicable selling costs, how to know if you’re going to have a tax liability to pay, and who to contact with specific questions. Please note that we suggest always consulting with a Certified Public Account for any tax advice!
Capital Gains Exemptions: Not Every Real Estate Transaction is Subject to Taxes
When you are selling your Pennsylvania house, you actually don’t need to include a high portion of it as long as you’re able to meet some specific conditions. In a normal situation, you can potentially exclude up to $250,000 if you’re filling as a single person, and up to $500,000 if you are filling jointly. Please note, however, that if you’re taking a loss on the property that you do not get to right off that amount.
How do you get that awesome deduction you might ask? It needs to be your PRIMARY RESIDENCE (of you must have lived there for two of the last five years).
If you’re interested in learning more, Investopedia’s has a fairly comprehensive article here to take a look at. They say:
“In order for the sale to be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years.
If you buy a home and a dramatic rise in value causes you to sell it a year later, you would be required to pay capital gains tax on the gain. This rule does, however, allow you to convert a rental property into a primary residence because the two-year residency requirement does not need to be fulfilled in consecutive years.
- You can sell your primary residence exempt of capital gains taxes on the first $250,000 if you are single and $500,000 if married.
- This exemption is only allowable once every two years.
- You can add your cost basis and costs of any improvements you made to the home to the $250,000 if single or $500,000 if married.”
Other Exclusions
Even if you don’t end up qualifying for the “Capital Gains Tax Exemption”, you can still potentially exclude a portion of your proceeds from your income tax. There are lots special conditions you can qualify for to receive a prorated, tax-free gain. If you need to sell because of a change in your health, a job change or other unforeseen circumstances, you will be able to write-off a portion of the profit.
Reporting the Sale For Your Pennsylvania Property. You will need to report the sale if you receive a 1099-S form from the title company. Form 1099-S is used to report gross proceeds from the sale or exchange of real estate and certain royalty payments. A 1099-S form must be provided to the recipient and a copy mailed or e-filed to the IRS.
This form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits. Let the agent know at the time of closing that the form will not need to be issued. Even if you are able to deduct all profits, if the form is issued, you will still need to file it with the IRS… even if no money is owed.
You can find the a link to the IRS website for a 1099-S form here.
Capital Gains Taxes
If the property you’re selling is an investment property that you have not owned for very long, you will probably be stuck paying capital gains tax. When an asset is sold for more than the purchase price, a “capital gain” is realized in the eyes of the IRS. Because of this, investors are often stuck paying a capital gains tax when the property is actually sold.
These taxes on capital gains are determined by how much money you make. If your income is low, you sometimes do not have to pay capital gains taxes. That said, people making higher incomes can pay significantly more. These short-term assets are typically taxed the same as ordinary income.
Selling Cost Deductions
You may be able to deduct any reasonable cost when selling your Pennsylvania house.
This can include but is not necessarily limited to the following: Agent fees, improvements necessary to sell the home, assessments, any marketing expenses, and closing costs. These can actually amount to a large deduction, so it’s important to track all of what you spend during the process of selling your house.
Always remember that there is no substitute for the advice of professionals. You should absolutely consult an accountant and even potentially an attorney to help make the best determination for what’s right in your situation.
Don’t worry too much about taxes when putting your house up for sale in Lancaster. If it’s the house you live in now, or one that you’ve recently lived in, chances are it won’t be a big deal.