When you sell a home in Macomb County, you may have to pay capital gains tax on the profits. But when do you have to pay it? This guide explains everything you need to know about capital gains tax on real estate.
What is Capital Gains Tax?
Capital gains tax is a tax on the profits from the sale of an asset. The asset can be anything, but in this case, we’re talking about real estate.
If you sell your home for more than you paid for it, you will likely have to pay capital gains tax on the profits. The amount of tax you owe will depend on several factors, including how long you’ve owned the home and your income tax bracket.
Who Has to Pay Capital Gains Tax on Real Estate?
Generally speaking, you will only have to pay capital gains tax on real estate if you profit from the sale of the property. If you sell your home for less than you paid for it, you will not owe any capital gains tax.
The IRS does have some exceptions, however. For example, if you sell your primary home and use the proceeds to buy a new home within two years, you may be exempt from paying capital gains tax on the sale.
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Do You Pay Capital Gains Tax if You Sell Your Primary Home?
If you sell your primary home, you may be able to exempt some or all of the profits from capital gains tax. The IRS allows a $250,000 exemption for single taxpayers and a $500,000 exemption for married couples filing jointly.
This means that if you are a single taxpayer and you sell your home for a profit of $250,000 or less, you will not owe any capital gains tax on the sale. If you are married and you sell your home for a profit of $500,000 or less, you will not owe any capital gains tax.
How Much Will Capital Gains Tax Cost You?
The amount of capital gains tax you owe will depend on several factors, including your income tax bracket and how long you’ve owned the property.
- If you’re in the 10% or 15% tax bracket, you will owe 0% capital gains tax on the sale of your home.
- If you’re in the 25%, 28%, 33%, or 35% tax bracket, you will owe 15% capital gains tax on the sale of your home.
- If you’re in the 39.6% tax bracket, you will owe 20% capital gains tax on the sale of your home.
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What is a 1031 Exchange?
A 1031 exchange is a way to defer paying capital gains tax on the sale of a property. With a 1031 exchange, you can sell a property and reinvest the proceeds into another property without having to pay capital gains tax on the sale.
To qualify for a 1031 exchange, you must reinvest the proceeds from the sale into another property within 180 days. The new property must be similar in type and value to the property that was sold.
For example, if you sell a rental property, you could use the proceeds to buy another rental property. Or if you sell a piece of land, you could use the proceeds to buy another piece of land. The 1031 exchange is a complex process, so it’s important to speak with a tax professional before you proceed.
If you’re thinking about selling your home, it’s important to know how capital gains tax works. Generally speaking, you will only have to pay capital gains tax if you profit from the sale of your home. But there are some exceptions, so be sure to speak with a tax professional about your specific situation.
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