Taxes owed when selling a home that is not your primary residence. If you are selling a home that is not your primary residence, you will have to pay taxes if you made a profit.
Q: I recently sold a townhouse and was concerned about how much tax I would be responsible for paying. Basically, I sold it for $375,000. There was no mortgage on the property, and I hadn’t lived in it since 2007.
I had done a lot of improvements on it to increase its value for sale and had hopes of claiming it on my taxes for 2013. Is there some sort of estimated formula I could use to estimate how much I could expect to pay in taxes? Thanks in advance.
Taxes Owed When Selling a Home That is Not Your Primary Residence
A: If this had been your primary residence, we would be happy to tell you that there isn’t any tax that you’d have owed. In fact, if you had simply lived in the home for two of the last five years, or through 2009 if you sold it in 2012, you still wouldn’t owe any taxes as long as your profit was less than $250,000 (if you’re single) or $500,000 if you’re married.
But that doesn’t seem to be the case here. We don’t have all of the information that we need, but we can make some educated guesses about what has happened and point you in the right direction.
Let’s start with how profit and the cost basis are calculated. When you sell a home, the IRS wants to know not only how much you paid for the property, but what capital improvements you made to the property (adding a room or replacing the roof versus painting a bathroom), and how much it cost to sell. If you add up the costs of purchase, sale (including the commission) and capital improvements, you will get your cost basis. The profit is calculated by subtracting the cost basis from the total sales price.
So if you sold your home for $375,000 and you paid $275,000 to purchase it plus another $25,000 to sell it (commission and other costs of sale), and $75,000 in capital improvements (let’s say that included a new kitchen, new bathrooms, roof replacement and new mechanicals), you would have zero profit, because the costs of purchase, sale and capital improvements equal $375,000, which is the price you paid.
Even though you didn’t live in the home, there wouldn’t be any taxes owed. Now if the numbers don’t line up that neatly, and you have $100,000 in profit, you would pay long-term capital gains tax at your current rate, which is probably 20 percent. So you would owe $20,000 in federal capital gains taxes and whatever extra in state tax.
If you sold in 2013, and your adjusted gross income (AGI) topped $200,000 (if single) or $250,000 if married), you might owe an extra 3.8 percent on the $100,000, or $3,800, for the Medicare tax. The IRS offers help on the extra Medicare tax here.
If the house was a rental property (which you didn’t indicate, but you said you hadn’t lived there as a primary residence for five years), you may have taken depreciation. When you sell the property, unless you are doing a tax-free exchange for another investment property, you will owe recapture on the depreciation you have taken at a rate of 25 percent. So if you took $100,000 in depreciation, you might owe $25,000 in taxes on top of any profit.
Calculating Cost Basis and Profit
Whether you have a mortgage doesn’t much matter when it comes to calculating your cost basis and any profit. What matters is whether you have, on a net basis, made money or lost money.
For more details, you’ll want to visit the IRS website and download these free publications: IRS Publication 523 “Selling Your Home,” Tax Topic 409 “Capital Gains and Losses,” and, if applicable, IRS Publication 527 “Residential Rental Property.”
More on Topics Related to Selling a Home
How Do I Avoid Paying Taxes When I Sell My Rental Property?
What Happens When a Seller Lies on a Disclosure?
How Is Real Estate Commission Split?
How Do You Protect Yourself When Selling a House?
Selling a House in Disrepair: Tax Implications
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We bought our first home approx. 1/4/85 for $48,500 and moved out march of 2008 when we bought another home, which we now have lived in for 5 years, almost 6 years in March 2014. We did not sell our former home right away but It is now on the market since Jan 2014. My 2 sons lived there for 5 years but they were not renting it. At the time of purchase it was a 2 bedroom, 1 bath home. We added 2 bedrooms and 1 more bathroom upstairs. Do we have to pay both federal and state taxes when we sell it. So, it was not our primary home for 5 years but our sons lived in it but didn’t rent it and we added a roof, 2 bedrooms and 1 bath and we just received an offer of $379,000 and it is almost sold.
I sold a home that I obtain in 1996, it was my father’s home , passed down to my mother and than me. I had a family member staying in the home and giving me a little something for the expense of the house. I’ve sold it as is for 14,648.00 December 2, 2016. Do I have to report this sale and if so how to I add this sale on my taxes ?
Linda, thanks for your question. If you inherit a property, you inherit it at its current market value on the day of death. In this case, your father left the home to your mother, who would have inherited it at its current value on the day of his death. When you inherited it, you received what’s known as the “stepped-up” basis, which would have been the value of the home on the day of her death. In this case, the home sold for so little money, that it’s possible it sold for the actual value it had when your mother died, if not less.
Do you know how much your father paid for the property? Did your father’s estate have a value estimated for the property? If not, and the claim of zero capital gains (or profit) is challenged by the IRS, you could ask a local real estate agent (perhaps the agent who helped you sell the property – unless you sold by owner) to help estimate it based on other similar homes selling in the neighborhood. If your mother died recently (in the past year or two), you may be able to claim that the value of the home when you sold it was the same value as the date of your mother’s death.
If the property was your primary residence, you’d be able to exclude up to $250,000 in capital gains (or up to $500,000 if you’re married). But this is a second home, and you don’t get the same benefit. If it is a rental property, and you’ve been claiming a deduction, you’d have to recapture the depreciation. (IRS Publication 544, Sale and Other Dispositions of Assets, might be helpful reading.)
In short, you’re supposed to report home sales to the IRS. According to IRS.gov, you would report the gain or loss on the sale of rental property on Form 4797, Sales of Business Property. Individuals typically use Schedule D (Form 1040), Capital Gains and Losses, together with Form 4797. But just because you report the sale doesn’t mean you’ll owe taxes on it, especially at this price point.
Please go to the IRS website and search for Publication 523, Selling Your Home. If you still have questions, consult your tax preparer, enrolled agent or a CPA. Thanks for your question.
Hello My friend terry and I bought a house in 1992 for160000 , terrys name was
only name on the title . She has not lived on the property for 20 or so years.
Now she wants to gift it to me and I would like to sell it as soon as possible
would I quallify for the 250000 capital gains inclusion when it sold it ? I have been living
in it since then but the title is in her name and so are all the utilities.???
thank you, Karen
My parents live in new Mexico they bought a house in California and they went back and forth to home from new Mexico and California. Me and my wife took care of the payments. Then they sold the home and made 50k on it will it have to be reported? We are confused?
Hi, I bought a house from my mom at market value and lived there for 8 years until I remarried in 2011 and moved to a property that she owned. My brother bought the remaining 3rd of the house that was owed on the mortgage. He now wants to buy the rest of the house which I am selling at $45000 which is equal to the market value that I bought the house for. I will not profit from this. Do I owe taxes on this money as I want to purchase a service year for retirement.
You should not owe taxes if you are selling the property for the price you paid for it. But just to make sure, please consult with your tax preparer. Thanks for your question.
We purchased a condo in 1999 in Wildwood, NJ for 100K and currently are looking to sell it. After commission, etc the new will be 282K. Both are retired and live off of SS and this was to help out with the retirement. Looks like the net profit will be around 150K @ 15%. Any suggestions on how to cut down the capitol gains tax
my mom bought a house under her name so I could live in it…I paid the mortgage on a monthly basis. the house was sold one year and a half after it was bought –I invested around $30,000 in remodeling it. The house was sold $70,000 more than it was bought. Question is, does my mom have to pay taxes on the profit?
I inherited my moms house back in 2004. I have had a family member living there all this time without paying rent. Now I am looking to sell and am wondering how I can estimate the amount of capital gains I will have to pay.
I am now (April 2017) selling what had been my principal residence. I rented it out in August 2012. It was owned in joint tenancy by nonmarried partners. Can both partners exclude a portion of their capital gain? If so, what portion? The original purchase price was 256,000, the sale price 680,000. Selling costs will be the commission and, I assume, costs of required repairs, inspections, and such. How much should be withheld for federal and California state taxes? Can the withholding be based on the simple rule of 3.33% of the gross sale price?
My wife and I am on home title deed (joint tenancy among four of us) on primary residence of my mom and dad. Mortgage is under my mom and dad names. My wife and I (two of us only) also own house i,.e. our primary residence and we live 400miles apart. I take home mortgage interest deductions on my taxes of my mom and dad’s house. When mom and dad’s house is sold, will they claim 500K capitals gain tax exemption? Is there any tax liability for two us?
My daughter has a house that she rented and didn’t live in for 2 of the last 5 years. She sold it in 2016. Will her income level in 2016 affect the amount of capital gains tax she pays?
I received the family home in a recent divorce. The property is able to be subdivided into 5 parcels–leaving me a parcel in the middle to live in.Three parcels are land and one parcel is a rental house. If I were able to sell for the 4 parcels for $400,000, are my taxes determined? We have depreciated the rental house in the past and have done upgrades. The cost of the original property (family home, rental and land) was $400,000. After the subdivision and sell, my portion with the family home should still be worth $650-750K. If I sell that separately will that be subject to normal capital gains, etc.
We lived in a home for 26 years and rented it for 6 years. Is the capital gains based on the original price we paid or the value of the home when it became a rental?
I sold my house during Feb 2017 and when I am supposed to pay the taxes?
When my husband’s parents divorced in the late 1960s, he left half of his share of the family home to his four children and the other half to his wife who, in turn, kept one fourth for herself and split the remaining one-fourth into quarters for her four children (atypical situation to say the least). His father is deceased and we recently had to move his mother into assisted living. The state required us to sell the home and pay them 61,000. Each of the four children received 34,000. We all would like to prepay taxes on this amount. Can anyone tell us how to do this? We’ve tried calling IRS many times, but was never able to actually speak with someone. Additionally, we had no luck on the IRS website. Any ideas or suggestions? Thank you!
I was gifted a townhome after my ex-husband moved out. I did nothing for 4-5 years, total expense to me. I rented off and on for about 20 years. It was sold for less than 70k. I am retired and on social security. Would I qualify as a one time tax deferral?
my nephew bought my mothers house 4 years ago for 400000k , because the bank wanted the money so he bought it , now he want to sell back the same price , but the value oft he house is 1 million dollars he was getting rent from her and me the uncle , he made NO PROFIT , dose he have to pay tax. we have to pay the tax and that will be to hard for mother and me , . by that time me the uncle i was bankcrupt now am okey he help my mother so she dose not have to loose the house ,so now we can bye it back from him ..Please help ous
My mom and dad bought some property around 1997 to use as a flea market. They did that until my mom died in 2000. We now want to sell the property. My dad is 83 and on a fixed income he is considered low income. How will this effect him in paying taxes? Or would it be better if we kept it and sold it after he dies. I would love for him to have some money now to do fun things with but I also do not want to pay a lot of taxes.
The house that I sold it was not my primary residence but IT was the ONLY property that I have. I was living in a home close to my job paying rent. What am I supposed to do?
I have a home which I want to sell for $200000.. It has been rented for 10 years. I owe $103000. on it. IThe expenses are more than the payment. Will I owe money to the IRS?
When my father passed away in 1196 I “inherited” a piece of property (also had my name on the title). I sold the property in Nov 2017 for $1500. The value on his estate assessment was $21000. I assume I can take a loss on this. Can I deduct the selling costs associated with the sale? If so, where do I list that?
My husband purchased a house in 2006 for about $181,000. A few years after living there, he purchased a new home and rented out the old. The housing market crashed so hes been continuing to rent out the property ever since. Now that the market has come up he is interested in selling. He currently owes approx $150-160K and was thinking of listing it for $185K. What amount, if any, would we be paying capital gains on? Thank you!!
He likely wouldn’t owe anything in the way of capital gains tax. If he bought it for $181,000 and sold it for less than that, he wouldn’t have any profits on the face of it, especially after factoring in the costs of purchase, sale and maintenance. However, if he has been writing off the home as a rental property all these years, he might have to recapture his depreciation at a rate of 25%. For more details about how this might specifically affect him, he should consult with his tax preparer, a CPA or an enrolled agent.
Thanks for your comment,
Ilyce Glink, Publisher
I purchased a house for 34000 in 1971. In 2004 I purchased another home for my homestead. I never rented the first home and I am selling this home for 190000. What kind of tax I have to pay if that house that was my homestead until 2004.
I moved out of my last house before 2 years, I think it was 1 year and 9 months, because my son was attacked at school by a teacher’s son and sustained a broken jaw. The school refused to punish the attacker and actually harassed my son instead. Obviously we had to move. I have tons of evidence to show this was the situation. Can I qualify for a partial capital gains exemption under these circumstances?
If you moved because of extenuating circumstances, you would be able to take a partial capital gains exemption. If you want the detail, go to this page on the IRS.gov website: https://www.irs.gov/publications/p523#en_US_2018_publink100073096
The short answer is that the main reason for a partial exclusion are: work related moves; health related moves; unforseeable events; and other facts and circumstances. I think this last category is where you’ll fall because you couldn’t possible have foreseen the issue in your son’s school.
Please talk to you tax preparer or a tax attorney for more details.
Hi! I have a question.
My mother inherited a house from her father valued at 600,000.. at the time of death. Rented it out for 7 year. Sold for 1 million. Put the proceeds of the sale into a 1031 exchange and then bought a place for 875,000 from the proceeds of the 1031 exchange.. Will I have to pay taxes in 125,000
Left over from the exchange … Or technically capital gains were 285k but that was reinvested?
You wouldn’t be the one paying taxes. She would, I believe, owe them on the $125,000 that was leftover from the exchange. Too bad she didn’t buy another piece of real estate that was income-producing for $125,000 and would then have been able to avoid all taxes. Please have your mom talk with her tax preparer or the attorney who helped her with the 1031 exchange for details.
Let me know what happens,
I sold a house that I have not lived in for over 5 years. I had renters but did not file as rental income because I broke even or took a loss each year. So I never used depreciation on my taxes. I always just deducted my small amount of mortgage interest each year in deductions. I bought the house for 130,000. Made some improvements but sold the house for 120,000. Do I have to pay a capital gains tax?
The good news is you probably don’t owe anything in taxes. You don’t need to repay your depreciation (because you didn’t take any). To calculate the capital gains tax liability, take the cost basis of the property (adjusted, if you took depreciation or if you made any material improvements to the property), subtract that from the net sales price of the property (sales price – commission and any other costs of sale), and multiply that by the applicable capital gains tax rate. For most taxpayers, the tax rate on most net capital gain is no higher than 15%, according to the IRS. Some or all of your net capital gain may be taxed at 0% if your taxable income is less than or equal to $40,400 for a single or $80,800 for married filing jointly or a qualified widower.
You can find out more at IRS.gov. Check out Topic No. 409, Capital Gain and Losses