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Homeowners can be so busy focusing on what they will receive for selling their house that they forget to consider costs that can dip into that final figure. Depending on how you sell and the circumstances around your property’s sale, you may lose some of your profits to taxes and fees.

If you’re curious about how much money you’ll have to part with, the following information may be enlightening.

Capital Gains Tax

Not everyone realizes it, but your home is often classed as a capital asset, which means it can be subject to capital gains tax. While many homeowners can avoid paying capital gains tax by fulfilling specific criteria that we’ll touch on below, others are required to pay it.

Generally, either short-term or long-term capital gains tax may be relevant to your situation. Short-term capital gains are typically taxed as regular income, which means you can be taxed on a property’s profit at a rate as high as 37%.

Long-term capital gains fees depend on your tax filing status and income but are generally taxed at between 0% and 20%.

Do I Have to Pay Tax When Selling a House?

In many situations, you do have to pay tax when selling a house. However, the Taxpayer Relief Act of 1997 allows some homeowners to be exempt from paying taxes when they sell their house.

Single homeowners may not need to pay any capital gains tax on profit figures up to $250,000. For married homeowners, that figure doubles to $500,000.

However, the act does have some criteria you need to meet to avoid paying capital gains tax. You must have owned your home for at least two years during the five years before you decided to sell it.

There is some flexibility around this. You don’t need to have lived in the property for two consecutive years or in the two years up until you sell.

In that two years-plus of homeownership, you must have used it as your principal residence for at least two years and did not sell another home that you excluded the gains on.

Even if you don’t fit into these criteria above, exceptional circumstances allow you to claim an exclusion. For example, you might have acquired a home from a divorce settlement, which means you can count your ex-spouse’s time living at the property as part of the two-year minimum requirement. The same general rule may apply to deceased spouses.

Do I Need to Report My House Sale On My Return?

If you received a Form 1099-S or didn’t meet the criteria outlined in the Taxpayer Relief Act of 1997, you must report the sale of your home. Talking to a tax expert or even the property purchaser may enlighten you about your obligations if you’re unsure.

If you do need to fill out a Form 1099-S, you will need to calculate the gains of your home, which incorporates the original property cost plus the capital improvement costs.

Many fees and costs can be avoided when you sell your home to a professional buyer, but it’s always crucial to understand your obligations. When you start looking at your sales options, do some research to determine what costs might eat into your final sale price.