How To Sell My House And Reinvest In Another One And Not Pay Taxes?

Nakul Kongovi | January 2nd, 2017

The first important thing that you should know when you plan to sell your property, or as soon as the thought of ” I have to sell my house” comes into your mind is that, the entire event is a taxable one. There are a number of taxes which you will be liable for, and these taxes might slam down really hard on you if you do not have a basic idea about these taxes.

 Along with getting to know more about them, you also need to know how to reduce, or in some cases even eliminate the tax liabilities when you are reinvesting your fund on another property. Read on to know more about how to handle and avoid excess tax.

Know your Profit

Before you try and figure out what your tax liability could be, first try to know how much exactly have you made. You can start by the cost basics, which is the purchase price plus closing costs and all the other spending on the improvement of the property. You can find your total profit by subtracting your total cost basis from your net sales proceeds (selling price less the closing cost)

For example suppose you bought a house for around $150,000, paid $2,000 as closing cost and spent the $15,000 on the renovation, your total cost basis would be $167,000. Now if you are selling your house for $300,000 and paying $100,000 in closing costs, you would be making a taxable profit of $33,000.

1031 Exchanges

When you sell your property, and buy another one for investment, it will be really helpful if you structure your transaction as a 1031 tax-deferred. Your transaction will not be treated as a taxable one, as long as you follow the rules of IRS and nominate a third-party to hold your money when you sell your house and you buy a the new place.

Tax Liability

In cases where you have held your property for more than one year, your capital gains are taxed as long term capital gains. On the other hand, if you have held the property for less than a year, the capital gains are taxed as regular income. When selling a house, the category under which you fall, has a great impact on the amount of tax paid by you. It also depends on whether you sold your property at a profit, or at loss, as in both the cases you need to pay different recapture taxes.

Selling Personal Residences

When selling your house, and if the property is a personal residence, the IRS doesn’t allow you to do a 1031 exchange and buy another one. So before you jump onto to the 1031 transaction in order to sell your property soon, know about the fact that you can exclude a large portion of the gain from your taxes because your property has been your primary residence.

Based on the 2012 tax year, a single person or a married couple (applying jointly) can exclude the first $250,000 and $500,000 in gains from taxes respectively. This means you need not break your head too much on “how do I sell my house and make profit, if I have to pay so much as tax?” 

Taxes can be a real headache, especially when you want to sell your property and invest in another one. There are many ways in which you can avoid paying excess tax. But the best way is selling your property with us. We at Realty Simplified LLC buy houses in Houston and offer instant cash in return. Call us or drop a mail to know more about how to sell my house Houston.