When selling a house in New York, a lot of people focus on the sale price and real estate agent commissions. But what they might not be thinking about are the taxes involved in a real estate transaction in New York State. There are a lot of tax implications that you need to be aware of when selling your home and depending on the situation they can have a real impact on your bottom line. Let’s take a closer look at the taxes to sell your home and dig deeper into how taxes are involved in selling a house in New York.
What are the Taxes on Selling a house?
Capital Gains Taxes in New York
The most important tax issue to be aware of when buying or selling a home in New York is capital gains. Capital gains are defined as the profits you make as a result of a real estate or property purchase. You can think of it as the difference between the selling price and the purchase price.
The amount of capital gains tax on your sale depends on various numbers and conditions. They include everything from the condition of the property to whether or not the buyer is a legal resident of the United States. Each different adjusts the percentage. There are also plenty of deductions available, including the fees paid for the origination of the loan application, closing costs, and points paid back on a loan to get a lower rate on the mortgage.
Generally speaking, capital gains taxes are around 15 percent for U.S. residents living in the State of New York. If the hose is located within New York City, you have to account for another 10% in NYC taxes. However, it’s possible that you qualify for an exemption.
If the house was the seller’s primary residence for at least two years within the last five years, capital gains are limited to $250,000 for an individual and $500,000 for a married couple.
It’s good to know how to report capital gains taxes as well. You’ll find them on Schedule D of your IRS form. You should note that if the property was owned for one year or less, the owner should report it as a short-term capital gain. If it was owned for longer than a year, it qualifies as a long-term capital gain.
One of the key takeaways from all of this is that it benefits the owner to live in the residence for at least two years before deciding to sell the house. If you do, you will have more time to reinvest the capital gain from the sale of the house.
Non-U.S. Resident Tax Concerns in New York
Something that is important to note is that taxes work a little differently if a non-U.S. resident is involved in selling a New York house. If a non-resident owns the property for over a year, they must pay 30% of the sale price amongst their federal and state taxes. This is due to Foreign Investment in Real Property Tax Act, which holds these taxes off from the sale’s proceeds in order to ensure that any non-resident pays taxes on a real estate transaction. New York State holds back 6.85% while the IRS withholds 10%. When the real estate is sold, the buyer or seller must file a Statement of Withholding on Disposition by Foreign Persons of United States Real Property Interests form with the IRS.
Someone could avoid these kinds of taxes by creating a Limited Liability Company, or LLC. Doing so would make it so that the entity buying or selling real estate in New York is no longer just a person.
Know Tax Exemptions For New York Home Buyers & Sellers
You are going to want to be aware of the many tax exemptions that exist when buying or selling homes in New York. First, if you own a house as a primary residence for at least two years and you have to sell it due to unavoidable circumstances that require relocation (a promotion, health problems, etc.), you can receive a tax exemption. When it comes to health reasons, you’ll need to make sure you have a letter from a physician that describes the issue in detail, just in case there is an audit at a later date.
You can also qualify for a real estate tax exemption for “unforeseen circumstances. What does that mean, exactly? Well, the IRS defines it as “the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home.” Just some of the examples include natural disasters, divorce, death, multiple births from one pregnancy, terrorism, or a change in employment status. It’s quite a wide set of parameters to choose from. You’ll want to consult IRS Publication 523 to get an even clearer idea of what qualifies as “unforeseen circumstances.”
Going back to capital gains, there is a provision in the tax code that allows those enlisted in the Army, Navy, or National Guard do not need to have lived in the house for at least two years in order to receive the exemption. Also, instead of five years, you have to have used it as a primary residence within the last ten years, accounting for the fact that some military members are away on active duty.
One other way to earn an exemption on capital gains is to buy a “like-kind” house or property. What this means is a house of equal or greater value than the property that you’ve sold. There are often restrictions that require you to have purchased the new home within 180 days of selling your older house. If you do seek this exemption, you have file forms with the IRS so that they are aware of the new purchase. Also, the new house has to be located within the continental United States.
Mortgage Tax Advantages
You should make note of the tax advantage you can receive when you have a mortgage on your New York house. This can come in handy when trying to figure out your strategy for buying or selling. When you have a mortgage, all interest you pay is tax-deductible and therefore reduces the amount of income that gets taxed. You should also consult with an accounting or tax professional as there are limits and regulations when it comes to what you can claim related to real estate taxes and you don’t want to catch the attention of New York State or the IRS.
Avoid the Taxes By Selling As-Is
Now that you know about the taxes involved when trying to sell your house in New York, it’s a lot of information and a lot to take in. But there is another solution where you can sell your house and avoid these kinds of extra payments. You can sell your house as-is directly to a cash buyer like Leave the Key Homebuyers.
They’ll buy your house in any condition or situation, even if you’re already dealing with tax or lien issues. They’ll review the details of your house and find time to meet you at the property quickly. They’ll handle all the repairs so you don’t even need to worry about it. Then, they’ll make you a fair cash offer based on the value of the house. Even better, there are no fees you’ll need to deal with beyond that offer.
If you accept, you set the closing date. Then, all you need to do is sign the contract and get your cash. No taxes to deal with and no extra costs to worry about.