Capital gains taxes exist due to the fact that people can generate income from properties that they own when selling their property, and these profits are taxable. Depending on when you sell your house and how much you make, you could be subject to the capital gains tax. You will report your capital gains on the Form 1040 schedule D when filing your taxes.
In 2018, the Tax Cuts and Jobs Act was passed with changes to the capital gains tax system. This article is intended to help individuals understand the changes they should be watching in 2018 for capital gains taxes.
One thing you should be aware of is that there are differences between short-term and long-term capital gains. You will be subject to short-term capital gains tax rates if you owned your property for less than one year before you sold it for a profit. Long-term capital gains taxes will be applicable to those individuals that own a property for more than 1 year.
Capital Gains Tax Rate on Income Property
According to the IRS, the most that you will be subject to paying for capital gains taxes is 15% of the profits on your sale. If you are in the ordinary income brackets (10-15%) than it is very likely that you will not have to pay any taxes on your capital gains. If may be subject to a higher rate at 20% of profits if you are on the higher income bracket (39.6% rate for those making over $418,400 or $470,700 for a married couple)
Capital Gains Tax Rate on Selling Real Estate
If you are selling your primary residence, as noted above there is the ability to deduct a large portion if not all of the capital gains profit from your taxes. However, if you are simply selling real estate that you own above and beyond your primary residence, you will likely owe capital gains taxes from any profits that you make on the sale of those properties.
Second Home and Property Sales Are Open to Taxes
If you have multiple properties, you cannot shelter the residential sale profits as easy as just having one primary residence. The Housing Assistance Act of 2008 was created to help provide relief for those facing foreclosure. It was designed so they would not benefit from the foreclosure proceeding, such as investing in another property. Under this new law, if you do purchase a second home for your primary residence, you will owe taxes. This number will be dependent upon how long you had that home as a second residence, instead of your main residence.