Are you curious about how can you reduce tax when selling a house? Are you in the process of selling a house, and you need help finding the best deductions when it comes time to close?
Selling a house, regardless if it’s to move to a new home or because you’re a real estate investor, is an exciting process that comes with serious tax implications. If you want to learn more about reducing tax when selling a house, continue reading below. We will cover all you need to know and where you can go to reduce the most capital gains tax on your home sale.
How Can You Reduce Tax When Selling a House?
There are several different ways you can reduce tax when selling a house. For example, if you own the home and live in it as your primary residence for at least two years out of the five years, you won’t have to pay capital gains tax. The two years do not need to be consecutive to qualify.
Wait at Least Two Years
It is important to note that you can use the above exemption only once every two years. If you claimed the exemption recently, you must wait two years before you can sell another residence.
The Internal Revenue System won’t forgive you, even if you sell the house a day before the two-year period ends. You must wait the full two years or can’t claim exemption.
Deduct the Cost of Capital Improvements
Did you know that you can deduct the costs spent on improving a home to reduce your tax liability? Before you can do that, there are three qualifications the house renovations must meet.
The improvement must substantially increase the value or prolong the useful life of the house. Examples of these types of improvements include installing new kitchen cabinets or replacing the water heater.
Another qualification is permanency. The installment must be something that is permanent such as an in-ground pool.
An above-ground pool does not count for this exemption. Lastly, you must ensure that the improvement becomes part of the house. This means that if someone were to remove it, it would cause damage to the property.
Best Way to Reduce Tax When Selling a House
One of the best ways to reduce as much tax liability as possible is to sell to a “we buy houses” company. These companies offer homeowners all-cash offers regardless of the condition of the house.
You can visit this location to learn more about selling your home for an all-cash offer. Before you commit to selling your home to companies like these, make sure that you take a look at their reviews.
This will help you gauge what other clients did or did not like about their processes. You will also want to check if they have accreditation from the Better Business Bureau.
Reduce Tax When Selling a House
Now that you know how can you reduce tax while selling a house, it’s time to get started. Several companies can purchase your home for cash, but not all companies are the same.
Ensure that you do your due diligence and thoroughly research a company before you submit any information or sign any documents. If you found this article helpful and want to learn more, check out our Home section today!