When you sell a property, what taxes do you have to pay? Say a
property sells for $200,000; how much do Federal, State, County, and
local governments take? Specifically, I’m referring to a residence
located in Ogle County, Illinois, but a ballpark nationwide estimate
will suffice.
Are you buying another property at the time of the sale?
That is the big one. If you buy a new house with the money soon, you don’t owe any capital gains tax unless you have a profit of $250,000 for a single person or $500,000 for a couple. That is profit only and the amount you paid for the house and any improvements you made to it are subtracted out. That means that few people owe any state or federal taxes on a home sale at all.
Real estate commisions OTOH can run up to 5% of the sale price.
The requirements I listed above are only for a primary residence and not rental properties. You would still owe capital gains taxes on those. A primary residence is defined as a home you lived in at least 2 out of the past 5 years.
I will not be buying another property soon. What percentage will I owe on the capital gains? I am selling the property for $31,000 more than I paid for it four years ago. However, factoring in what I paid for taxes, interest, and insurance, I am losing about $20,000 overall. Does that count with regard to taxes?
I’ll owe the realtor six percent.
I’m trying to get a handle on what kinds of fees and taxes I’ll also be hit with at the closing. Federal/state/county/municipal fees and/or taxes–that kind of thing.
Capital gains are complicated. You have to read this:
http://www.bankrate.com/brm/itax/tips/20010305a.asp
Keep in mind that any real improvements you made can be used to make the gains lower. I am pretty sure all of the taxes and those types of expenses cannot.
Your real estate commision sounds high at 6%. You should be able to do it at 4% without much trouble or you could sell it yourself for much less.
Websites like www.isoldmyhouse.com let you do that.
You won’t owe any capital gains taxes to the Feds on this assuming you lived in it at least 24 months during this time - the 31,000 is well less than the 250,000 limit. The taxes, interest and insurance you paid don’t affect this at all. Only improvements - if, say, you’d spent 5,000 updating the kitchen, then your profit is only 26,000, not 31,000.
You will probably owe property tax for part of the year - as an example, if the property tax is 1,200 a year and you sell it at the end of June, 600 of that 1200 is owed by you. Depending on timing of when taxes are paid in your municipality, you might need to bring that 600 to closing to cover your share for the year, or get back 600 if, say, you prepaid the entire 1200 on January 1 (then the buyer would have to reimburse you for the tax you already paid for the second half of the year).
Your state income tax probably (possibly) follows the same rule as the Feds. IIRC, there are a number of recording fees / tax stamps due at closing but I think the buyer pays those.
Thank you for all the information! It gives me a much better idea of what to expect.
In many US states, property taxes are paid in the next year for the previous year.
Here in Minnesota, in May 2006 (first half) and October, 2006 (2nd half) I will be paying the property taxes for 2005. And taxes are owed by the owner of the house at that time. So if you sold the house on Dec 31, 2005, you still owe the property taxes that come due in Spring of 2006. The bill mailed out at that time will likely go to the house address, where the new owner is living. But you are the one who owes it, because you were the one owning/living in the house during 2005.
As you say, this is generally taken care of at the closing. The seller will bring a copy of last years property tax statement, and then either pay that amount, or deduct it from the amount the buyers owe. Sometimes this check is written directly to the County Tax Department, shown to the seller, and then mailed to the County. (So the seller can be sure the money went toward the tax bill, not into the buyers pocket.)
If taxes are increasing, the amount from last year might be a bit low. Sometimes they agree on an adjusted amount, sometimes the buyer just pays the increase when it comes due next spring. (Given all the fees being paid at a closing, this is usually a fairly small amount.)