Are you thinking about the tax consequences for selling a Georgia house?
This article is going to walk you through what you need to know about the capital gains that you will be paying when selling your house in Georgia.
Selling real estate often means you will make large profits that you will owe capital gains tax on in Georgia. Unfortunately, that means that HUGE chunks of that cash you make goes to the government. You should consider the capital gains tax implications when selling your home to see if selling is even worth it.
If you want to learn how to sell your house without having to lose all of your profits to capital gains taxes…
This blog tackles a few tax tips regarding selling your Georgia property, including the Capital Gains Tax Exemption, reporting issues, and selling cost deductions.
Capital Gains Taxes in Georgia
First thing’s first. What are capital gains taxes?
The IRS assesses capital gains taxes on the different between what you pay for an asset and what you sell it for.
For example, if you bought the house for $100,000 and sell it for $175,000, then your capital gains are $75,000. This is what you are going to be taxed on, not the ENTIRE $175,000.
Think ahead when planning for paying taxes.
You aren’t going to be paying taxes immediately when you sell your home. And the real estate attorneys in Atlanta won’t be setting that money aside for you.
Saving the amount of capital gains taxes that you are going to be owing the government will be your responsibility to set aside and save for tax time in April.
If you spend the proceeds before tax season, you could find yourself unable to pay the tax debt. Not being able to pay the IRS the tens of thousands that you owe them will lead to foreclosure in Georgia.
Figure out what taxes you will owe when you sell your home in Georgia.
How to Avoid Capital Gains Taxes in Georgia
When selling your house in Georgia, you can exclude a high portion of your profits. This is called your capital gains tax exemptions.
Based on the Taxpayer Relief Act of 1997,1 if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. If you are married, you are able to receive a $500,000 exemption. There are, however, some restrictions on this exemption.
The deduction is only available when selling your primary residence. If you are a landlord, you will have to pay your capital gains in Georgia, unless you sell the house with a 1031 Exchange. The capital gains tax exemptions can only be used once every two years. To qualify for the capital gains tax exemption, you must have lived in the residence for at least two of the past five years.
Live in the house for at least two years.
The two years don’t need to be consecutive. Meaning, you can live in the house for a year, relocate for a job for a year, and move back for another year, which will total two years living in the property. If you sell a house that you didn’t live in for at least two years, the gains can be taxable. Selling in less than a year is especially expensive because you could be subject to the short-term capital gains tax, which is higher than long-term capital gains tax.
See whether you qualify for an exception.
If you have a taxable gain on the sale of your home, you might still be able to exclude some of it if you sold the house because of work, health, or “an unforeseeable event,” according to the IRS. Check IRS Publication 523 for details.
Keep the receipts for your home improvements.
The cost basis of your home not only includes what you paid to purchase it but all of the improvements you’ve made over the years. When your cost basis is higher, your exposure to the capital gains tax is lower. Renovations, new windows, new roofs, landscaping, fences, new driveways, air conditioning installs — they’re all examples of things that can cut your capital gains tax.
Georgia Tax on Capital Gains [Exclusions]
Can’t qualify for the Capital Gains Exclusion? There’s still hope to cut your taxes and keep some of your profits.
There are numerous reasons the IRS will let you have some tax breaks on capital gains in Georgia.
Some of them include:
- Loss or change in employment.
- Health reasons like disease, illness, or injuries.
- Unforeseen circumstances like disasters, war, unemployment, divorce, etc.
There are many special conditions you can meet in order to receive a prorated, tax-free gain. If you need to sell because of a change in your health, a job change, or other unforeseen circumstances, you will be able to write-off a portion of the profit.
Form 1099-S is used to report gross proceeds from the sale or exchange of real estate and certain royalty payments. A 1099-S form must be provided to the recipient and a copy mailed or e-filed to the IRS.
IRS Form 1099-S form is used for tax reporting purposes to report proceeds from real estate transactions. It must be used whenever you make a real estate transaction in the tax year.
Transactions can include land, permanent structures, apartments or condominiums, and more. The form needs to be used any time the exchange of real estate takes place: for a sale or an exchange.
This form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits.
Capital Gains Tax Rate Georgia
Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. How much these gains are taxed depends a lot on how long you held the asset before selling. To help you figure out what your capital gains might be in Georgia, check out this capital gains calculator.
Short-Term Capital Gains Tax in Georgia
Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. For the 2020 tax year, the short-term capital gains tax rate equals your ordinary income tax rate — your tax bracket.
Long-Term Capital Gains Tax in Georgia
Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. The long-term capital gains tax rate is 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
Capital Gains Tax Rate Filing Single
|Long Term Capital Gains Tax Rate
|$0 to $39,375
|$39,376 to $434,550
|$434,551 or more
Capital Gains Tax Rate – Married Filing Jointly
|Long Term Capital Gains Tax Rate
|$0 to $78,750
|$78,751 to $488,850
|$488,851 or more
Capital Gains Tax Rate – Married Filing Separately
|Long Term Capital Gains Tax Rate
|$0 to $39,375
|$39,376 to $244,425
|$244,426 or more
Capital Gains Taxes Georgia
If you are selling an investment property or house you have lived in less than two years, you will likely be paying capital gains tax.
You are hit with capital gains taxes when you sell an asset and make a profit. How much you are taxed is dependant on how much profits you make and how much money you earn annually at your job or business. Capital gains taxes are only triggered when a house is sold.
Capital Gains taxes are dependent on how much you make. If you have a lower income, you will pay no capital gains taxes.
People in higher tax brackets can pay upwards of 20%. Short-term assets are typically taxed the same as ordinary income.
Deduct Selling Costs to Pay Less Capital Gains Tax
Chances are that when you sell your house in Georgia, that you are able to make reasonable deductions to lessen your tax hit.
These deductions, if documented properly, include things like renovations, costs to sell real estate in Atlanta, costs to list a house, and maintenance that you have kept on the house. It’s important that you keep track of your expenses during your ownership of your home so that you can work with your CPA to deduct everything that you can.
Don’t stress too much about taxes when putting selling your house in Atlanta. Odds are Uncle Sam won’t be getting his hands on your profits.
Selling with a 1031 Exchange
Since we buy houses with our own money, we are able to close when it works best for you. If you want to sell your investment property, but need to work with a buyer that can close in a very specific time frame, just fill out the form below and let’s chat.
We work with investors all of the time who are 1031 Exchanging their properties so that they can avoid paying capital gains taxes in Georgia. We can close on the exact date that works for you.
Don’t mess with MLS buyers who rely on financing that can fall through at the last minute, making you lose the opportunity to do a 1031 exchange and deferring your capital gains.