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Anytime you sell personal property and make a profit you are subject to capital gains taxes. There are both long- and short-term capital gains. If you owned the property for one year or less, it is considered a short-term gain and if you owned it for over a year it is a long-term gain. IRS capital gains taxes are levied against any type of property sold including stocks and collectibles. However, the most common IRS capital gains taxes are incurred due to profits arising from the sale of land or a home. You should be aware of this when selling property so that you can budget for your tax liability. IRS capital gains are reported on a 1040 form Schedule D when filing your taxes. You will need to fill out information regarding the property, how much you paid for it, and how much it was sold for. To determine how much of your profits from the sale of the real estate will be taxed, you can use a capital gains tax calculator. You can also download an IRS capital gains worksheet directly from the IRS website at www.irs.gov to calculate the amount. When you have a tax liability, you may be required to make estimated tax payments throughout the year until filing your income taxes by April 15th of each year for the previous tax year. There are various tax rates and exemptions based on your particular situation so it is important to understand the laws and your responsibilities. Tax rates and exemptions will vary depending on whether or not the home was an investment property, rental property, or your personal primary residence. For a primary residence that you lived in for at least two of the past five years, you can exempt $250,000.00 if single or $500,000.00 if married. Even if you lived in the home for less than two years, there are some exceptions allowing exclusion of some of the profits. IRS capital gains must be reported on your taxes as income and your tax liability calculated. If you anticipate more then $1,000.00 in tax liability due to capital gains taxes, you may be required to submit an estimated tax payment. When considering selling your home, we recommend that you research the estimated profit you will receive, if any, and calculate your projected tax liability. You can then budget accordingly and be prepared when it comes time for tax season.
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