A common question from people looking to sell a house is the tax implications of selling real estate. We’ll answer this question and cover the following in the article below. This article is for informational purposes and we suggest speaking with a qualified tax professional for advice.
If you’re interested in selling without a real estate agent and the thought of selling FSBO is too much we can help. Complete the form below to contact us or, keep reading to review our detailed guide on selling your Kentucky house without a real estate agent.
- Taxes When Selling a House in Kentucky
- What is capital gains tax?
- How capital gains tax works in Kentucky
- Capital gains tax rate in Kentucky
- Deductions and exclusions to capital gains tax in Kentucky
- Other real estate taxes when selling a house in Kentucky
- Steps to Reduce Your Tax Liability
Taxes When Selling a House in Kentucky
Selling a house is an exciting but complex process, and one important consideration for sellers is the tax implications of the sale.
In Kentucky, the tax rules for selling a house can be confusing, so it’s important to understand your obligations and options.
The most common taxes with the sale of real estate are capital gains tax and property transfer tax.
What is capital gains tax?
Capital gains tax is a tax on the profit that is made when you sell an asset that has increased in value. In real estate, it’s the tax on the difference between the purchase price and the sale price of a property.
Capital gains tax only applies when you sell the property for more than you paid for it. The tax rate on capital gains depends on several factors such as the length of time you have owned the property, your income level, and the type of property.
It’s important to note that capital gains tax is a federal tax, so it applies to all states including Kentucky. However, some states may also impose their own capital gains tax on top of the federal tax.
How capital gains tax works in Kentucky
If you sell your primary residence in Kentucky, you may be subject to capital gains tax on any profit you make from the sale.
However, there are some exceptions to this rule. If you’ve lived in the house for at least two of the past five years, you can exclude up to $250,000 of the profit from your taxable income if you’re single, or up to $500,000 if you’re married filing jointly.
If you don’t meet the residency requirement or exceed the exclusion limit, you’ll need to pay capital gains tax on the excess profit at the current rate.
Capital Gains Tax Rate in Kentucky
Some states have their own capital gains tax on the sale of real estate, in addition to the federal capital gains tax. However, not all states have a state-level capital gains tax, and the rules and rates can vary widely between states.
In Kentucky, for example, there is no separate state-level capital gains tax, so only the federal capital gains tax rules apply. It’s important to consult with a tax professional or do your own research to understand the capital gains tax rules in your specific state.
Deductions and exclusions to capital gains tax in Kentucky
There are some tax deductions that you may be able to take advantage of when selling a house in Kentucky. For example, you can deduct certain selling expenses from your taxable income, such as real estate agent commissions, marketing costs, legal fees. These expenses can add up and be a substantial tax deduction, don’t overlook this like many home sellers do.
Other real estate taxes when selling a house in Kentucky
Tax: In Kentucky, sellers are responsible for paying the state property transfer tax, which is calculated based on the sale price of the property. The tax rate is $0.50 per $500 of the sale price, or 0.1% of the sale price.
For example, if your house sells for $200,000, you’d owe $400 in property transfer tax. It’s important to note that this tax cannot be passed on to the buyer.
3 Steps to Reduce Your Tax Liability
Step 1: Understand tax deductions
If you’ve lived in the property for at least two of the past five years, you can exclude up to $250,000 of the profit from your taxable income if you’re single, or up to $500,000 if you’re married filing jointly.
You can also deduct certain selling expenses from your taxable income, such as:
- real estate agent commissions which are typically about 6% of the sales price, or $6,000 per $100,000.
- marketing costs related to the sale like advertisements in the paper or online listings
- legal fees involved with selling like title searches, closing paperwork and filing fees
Step 2: Keep good tax records
- Keep accurate and up-to-date records: Make sure you have a system in place for tracking your income and expenses, including receipts, invoices, and bank statements. It’s a good idea to use accounting software or an online tool to help you keep track of your records.
- Retain records for the required time: The IRS requires taxpayers to keep records that support their tax returns for at least three years from the date the return was filed. Some records, such as records related to property, should be kept for longer periods. Consult with a tax professional to determine the appropriate retention period for your records.
- Back up your records: Make sure to back up your records in case of loss or damage. You can use cloud storage, an external hard drive, or another secure method to back up your records.
Step 3: Hire a tax professional
A tax professional can provide you with personalized advice based on your unique financial situation and help you navigate the complexities of tax laws. They can also help you take advantage of any available deductions and credits, which can ultimately reduce your tax burden.
Overall, while it may seem like an additional expense to hire a tax professional, the benefits can far outweigh the costs. Not only can they help you save money on your taxes, but they can also provide peace of mind and help you make informed financial decisions.
Taxes on a House Sale in Kentucky in Summary
In conclusion, selling a house in Kentucky can be profitable, but it’s important to be aware of your tax obligations, eligible deductions and ways to reduce your tax liability
- Understand tax deductions
- Keep good tax records
- Hire a tax professional
By understanding the tax rules and working with professionals who can guide you through the process, you can ensure a successful sale with minimal stress and maximum financial benefit.
About Us – We Buy 502
Hi, I’m Nyx Sherwin owner of We Buy 502. We’re a small, family-owned business located in Louisville, KY and we’ve also called Lexington and Bowling Green home.
We know selling a property can be a long and tiresome process. From repairs, to showings, negotiations and the waiting game to close. We believe there’s a better way to sell real estate that most don’t consider.
Our process to buy your house is straightforward and simple.
Call us today at (502) 849-5950 to get a cash offer today!
We buy all over Kentucky in major cities like Louisville, Lexington, Elizabethtown, Bowling Green, Owensboro and surrounding areas. Even more rural areas of Kentucky like Frankfort, Georgetown, Richmond, Radcliff, Glasgow, Scottsville and Smiths Grove. Click here learn more about us and the markets we buy houses, apartments, condos and land.
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