When property owners set their sights on selling their homes, the aim is always to get the best returns from the original investment. With this in mind, it’s important to understand how taxes apply to your potentially lucrative transaction.
Here is an overview of relevant taxes that apply to home sales in the Golden State:
This tax is charged when a property changes ownership from the seller to the buyer. The exchange is recorded in a document that is then submitted and filed with the county recorder’s office.
In most cases, transfer taxes are paid to the county, although some California cities like Los Angeles, San Francisco, and Riverside collect transfer taxes on their own.
The responsibility over paying transfer taxes may be negotiated between the buyer and the seller, although some customary preferences may apply depending on your region. In Southern California, for instance, sellers typically shoulder the cost of paying the transfer tax.
Capital gains taxes
The term “capital gains” refers to the profit that you make from the sale of an asset—in this case, your real estate property. In California, capital gains are taxed by both the federal government through the Internal Revenue Service (IRS) and the state’s own Franchise Tax Board.
The good news for home sellers is that there are tax exemptions to capital gains related to real estate.
For single/individual property owners, only profits in excess of $250,000 can be taxed. For instance, if you bought your home for $500,000 and sold it for $800,000, only $50,000 out of the $300,000 profit will be taxable.
Additional conditions apply to capital gains taxes:
- Property owners who are married or registered domestic partners can file jointly for an exemption of up to $500,000.
- The property must have been owned for at least five years prior to selling and was used for at least two out of those five years.
- Home sellers should not have used the capital gains tax exclusion within the previous two years.
- Capital gains tax exemptions only apply to property sale transactions completed after May 6, 1997.
Paying property taxes should already be a familiar responsibility to long-time homeowners. But what should you expect from your property tax obligations when you sell off your home to a new owner?
In California, property taxes are due in two equal installments—the first on November 1st and the second on February 1st. If you haven’t paid any property taxes prior to the sale, it will be the buyer’s responsibility upon the transfer of ownership.
However, if you’ve already paid your property taxes whether partially or in full, you can negotiate with the buyer toward a credit that is prorated from the date of your sale.
Need more home selling advice and professional assistance?
The prospect of selling your home in the dynamic and competitive Southern California real estate market can be exciting and worrisome at the same time. But one thing’s for sure: you can feel more at ease when you work with a reliable, experienced, and well-connected listing agent.
If you’re ready to sell your home in Westlake Village, Westlake Island, North Ranch, or other nearby communities, The Pacitto Group is the name to remember. Contact me, Teri Pacitto, at 805.494.4663 or email teri(dotted)pacitto(at)gmail(dotted)com to make your home selling goals a reality.