Taxes. You can’t escape them. But they may not be as significant as you might think. If you’re hesitating to sell your house because you’re afraid of taxes, don’t worry. Here at Geaux Home Buyers, we buy houses in Baton Rouge, LA, and know a thing or two about paying taxes when selling a home. Let’s take a look at what you need to know.
First: Property Taxes
You will need to pay your property taxes before you sell your property. But that doesn’t mean you need to send them to the tax offices directly.
Before your sale closes, the escrow company will receive information about any taxes owed. Once the money is collected from the buyer, it will go to paying any back taxes.
Don’t worry if you’re a little behind on your property taxes, as they’ll all get paid. However, if you’re currently in serious arrears, you should know that your property could be sold at a tax auction. You should sell your house fast (as fast as possible) to avoid this situation. You don’t want to lose your house over a few thousand dollars of tax debt.
But also be aware that those debts are likely to cut into the profit that you’re making. If you already owe money on your mortgage (underwater on it), you might find yourself still owing money once you’ve completed the sale of your home. You may want to inquire with your mortgage servicer about a “short sale” (selling short of the amount of your home loan) to avoid this situation.
Second: Gains Taxes
If you’re selling your residential property, it’s actually very unlikely that you will need to pay any taxes. You can exempt yourself from a $250,000 gain on your property.
So let’s say you bought your property for $100,000, and you’re selling it for $200,000. That’s a gain of $100,000. That’s less than $250,000, so you won’t pay taxes on that gain.
However, if you bought your property for $500,000, and it’s now worth $1,000,000, you will have to pay property taxes for $500,000 minus the $250,000 exemption — a $250,000 remainder.
And if the property was an investment property (such as a rental), you might need to pay taxes on the rental property.
There is an exception if you do a 1031 exchange. A 1031 exchange lets you exchange one property type for another. You can sell a residential house then buy a residential house without paying taxes on the gains, or you can sell an investment property and buy an investment property. Under a 1031 exchange, you’re not actually getting money for the property, just trading one property for another.
But such an exchange can be a little complicated to work out, so you should always work it out in advance.
Other Closing Costs
Taxes are likely to be marginal when closing. Other closing costs include realtor fees (which you don’t need if you go through a cash home buyer), inspection costs, concessions, and more. You may find yourself having to pay for new flooring if the buyer is insisting on new flooring, or you may need to engage in repairs before the house can pass inspection.
Because of this, it’s often in your best interest to go with a cash buyer when you need to sell your house fast. A cash buyer is a company that is able to provide cash to buy your house right away. They don’t rely on inspections or appraisals. They just make you an offer and are able to close within days. Are you ready to sell your house fast? At Geaux Home Buyers, we buy houses in cash. Regardless of the condition of your property, we can make an offer. Contact us today to find out more about how we buy houses.