What Taxes Do I Pay When Selling My House?
Here at We Buy Salt Lake City Houses, you can sell your house fast without the hassle of a realtor. But avoiding realtor fees doesn’t mean you avoid paying taxes on your house. When you sell your house, what additional taxes are you going to have to pay? It may be nothing. It may be considerable. Let’s take a further look.
If you’re trying to sell your house fast, it could be that you’re already behind on the mortgage and property taxes. If you’re behind on property taxes, you don’t need to pay them directly. But they will get paid from the proceeds of the sale before you get any money back. Property taxes always need to be paid by the escrow company before the property is forwarded on to its new owner. Property taxes aren’t going to follow the property.
Now, this is where it gets a little complicated.
If you’re selling a house that you currently live in, you’re selling a residential property. In Utah, you can exclude up to $250,000 of the value gained from the property if you’re single or $500,000 if you’re married.
So if you bought a house for $200,000 and are selling it for $300,000, you pay no taxes. But if you’re single, and you bought a house for $200,000 and are selling it for $600,000, you’ll pay taxes on $150,000 of the home sale (the $400,000 profit minus the $250,000 exclusion).
Because of these exclusions, it’s rare that you ever need to pay taxes on your own home. If you’re selling your own home, you will have to make more than $250,000 in profit to start paying taxes.
But if it’s an investment or rental property, you will need to pay either short-term or long-term gains taxes on the profit. Again, it’s the profit of the property. If you’re selling at a loss, there are no taxes.
Completing a Short Sale
If you really need to sell your house fast, you might need to opt for a short sale. A short sale is when you sell your house for less than you owe to the bank. So you might be selling that house for $200,000, but your mortgage might still be $250,000.
We buy houses for cash, so we can purchase your house fast and as-is. But you will need to pay taxes on the difference.
In this case, the bank would be writing off $50,000 of your debt. That debt they wrote off is essentially gains or income to you because it’s a debt that you suddenly don’t need to repay.
So you should keep in mind that after a short sale occurs, you might be looking at a tax bill. You can talk to your tax accountant about it in more detail.
Completing a 1031 Exchange
There is a way to get out of paying taxes at all, even if you’re selling an investment property, but it requires that you purchase another property altogether. If you’re trying to exchange one similar property for another similar property (a residential house for a residential house or a rental for a rental), you can do a 1031 exchange.
Of course, there are some requirements too. You can’t ever be “in charge” of the money being used. The entirety of the 1031 exchange has to be handled by an escrow company. So you need to let your agent and escrow company know that you’re trying to do a 1031 exchange from the start. This helps you avoid unnecessary taxes.
In short, it’s possible that you’re not going to pay any taxes when selling your house. It’s also possible you could end up with a tax bill. You should do your research beforehand so there aren’t any surprises.
Are you selling your house in Salt Lake City? If you need to sell your house fast, we buy houses as-is. Contact us at We Buy Salt Lake City Houses to get started with your no-obligation offer.