Are you sure that you understand everything to do with taxes once you decide to sell your house in Dearborn MI? In the property market, most people focus on things such as the price of the listing, mortgage rate, and closing costs. What many people fail to understand is that taking into account all tax implications as a result of home sale is very crucial. This is because; taxes can complicate the entire home sale especially if you lack basic accounting or tax knowledge. There is also the possibility that you have not even taken into account your tax obligations after selling the house.
Understand Taxes in a Home-Selling Deal in Dearborn MI
To understand better the tax implications on the home-selling process, our focus will be on house sales in Dearborn MI. you have the option of avoiding your tax liability after selling your house by selling it to Dearborn-Homes LLC through a cash-buyer transaction. For those wishing to list their property on the open market, then you might consider preparing in advance for any tax challenges that may arise from the sale as outlined below.
Capital Gains Tax
You might not know much about taxes when selling your house but if there is one tax you ought to know, it is capital gains tax. Capital gains tax is defined as the appreciation of your house that is calculated as the profit once you decide to resell the house. Simply put, it is the difference between the selling price of the house and how much you paid for the same. The rate of capital gains tax is dependent on your income and ranges between 0 and 20%-calculated on the basis of income levels.
How to Avoid Capital Gains Tax
In a home-selling transaction, the federal tax law exempts home sellers with a capital gains tax of $250,000 from paying taxes. For joint tax filers, this amount increases to $500,000. This means that any profits above the stated amounts are taxable. There are grey areas in tax laws in terms of exemptions. For example, you are required to have lived in the house you are selling for at least 2 years of the previous 5 years and at the same time not to have claimed tax exemption in a different residence for a period of 2 years. There are unique circumstances such as death and divorce that also affect eligibility to capital gains tax exemption.
When Are Taxes Due?
Apart from understanding the basics of taxation from home sales, when to pay those taxes is also a crucial factor in the sale process as well. It is a requirement that you pay your tax from your home sale at the end of that year’s tax deadline. This means that if you sell your house on 10th February 2020, you will be required to pay your taxes when filing your April 15th, 2021 taxes. In some instances, there is an option where you make estimated tax beforehand so that you are not hit with a massive tax bill at the end of that tax deadline.
Real Estate Transfer Taxes
In almost every state, there is a document transfer fee that is also referred to as the real estate transfer fee or stamp tax. This fee is meant to cover the cost of deed changes and any other document that is filed with the local or state governments after the sale of the property. There is no standard rate of the real estate transfer fee as each state has its own rate. In most cases, this fee is often split between the buyer and the seller and is often part of the negotiation process. Always make sure that you check beforehand the rate of stamp tax in your state and the local council. You might be surprised that in some cities, the stamp tax is zero.
Many states are less likely to make it easy for you when it comes to calculating property taxes. There are certain states that do not even charge property taxes. However, some local and county authorities will still charge you property taxes that vary depending on the local laws and where you live. So how are these taxes calculated? A local county assessor is tasked with the responsibility of calculating your property tax and then collecting the tax accrued based on that figure. Payments are made bi-annually in the months of May and September. Always check with the county assessor the amount of property tax you are required to pay. It is also important to be on the lookout for any changes to city and county laws so that you can adjust your tax bracket accordingly.
You Can Avoid Paying Taxes Altogether
Considering the many pitfalls that you are likely to encounter when selling a house in Dearborn MI, there is a general feeling among home sellers that the process is long and tedious. However, it does not always have to be so if you choose to sell your house to Dearborn-Homes LLC.
We are more than ready to buy your house regardless of its condition. Our process is seamless as all we need is to review the details of the house then arrange a meeting at the property. We take care of all the repairs so you need not worry about that. The best part is that we will always give you a fair offer based on the value of the house. If you accept the offer, you will instantly receive a cash payment from us and we close the deal.