TAX Matters: Capital Gains tax & tax Exemptions
Capital Gains Tax
Selling a property in Georgia can be an exciting time, but it's important to be aware of the potential tax implications. Capital gains taxes are a key consideration for homeowners and investors alike. At Move Realty Co., we want to ensure you're informed every step of the way. Here's a breakdown of what you need to know:
What are Capital Gains?
Capital gains are essentially the profit you make when you sell an asset, in this case, real estate. It's the difference between what you sell the property for and your basis in the property. Your basis is generally the original purchase price, plus any eligible improvements you've made.
Federal vs. State Taxes
It's crucial to understand that capital gains taxes are primarily federal taxes. The State of Georgia does not impose a separate capital gains tax. This is good news for Georgia property sellers! However, you will still need to report your capital gains to the IRS (Internal Revenue Service).
Tax Rates
Federal capital gains tax rates vary depending on your income level and how long you've owned the property.
- Short-term capital gains: If you owned the property for less than one year, the profit is considered a short-term capital gain and is taxed at your ordinary income tax rate.
- Long-term capital gains: If you owned the property for more than one year, the profit is considered a long-term capital gain, which is generally taxed at a more favorable rate.
Exclusions
The IRS provides some significant exclusions that can help many homeowners minimize or even eliminate capital gains taxes:
- The Section 121 Exclusion: This is a major benefit for homeowners. You can exclude up to $250,000 of capital gains if you're single, and up to $500,000 if you're married filing jointly.
- To qualify, you generally must have owned and lived in the home as your main residence for at least two out of the five years before the sale.
- You can generally use this exclusion multiple times, but usually not more than once every two years.
Important Considerations:
- Investment Properties: The rules for capital gains taxes can be more complex for investment properties.
- Depreciation: If you've taken depreciation deductions on a property (like a rental), this can affect your capital gains calculation.
- Tax Laws Can Change: Tax laws are subject to change, so it's essential to stay updated or consult with a tax professional.
Tax forms