Yes, any sale of a house is considered a sale of property which means the gain is subject to federal & state tax. However, certain homeowners may receive a tax deduction which significantly reduces the amount of tax the sale is subject to.
Who gets the deduction?
The answer to this question depends on if this house is considered your primary home or a secondary home (i.e. vacation home) / investment property.
If the property is a primary home, you qualify for an exclusion of gains. This exclusion is capped at $250,000 or $500,000 if married filing jointly for those that qualify.
To qualify for the exclusion you must meet the following Eligibility Test Conditions:
- Ownership: You or your spouse must have owned the home for at least 24 months out of the last 5 years prior to the date of the sale
- Residence: You or your spouse must have owned the home and used it as your main residence for at least 24 months of the previous 5 years. Note that it does not have to be during a single period. The 24 months can be spread out throughout the past 5 years
- Look-Back: You have not used the exclusion for the sale of another home during the two year period before the date of sale
There are several unique exceptions that must be kept in mind as well. Contact us today for a consultation to understand if taxes apply to your home sale or look at the IRS publication for the specific list.
What about New York State taxes?
New York State tax laws for any sale of a home align with the Federal tax laws previously discussed. The federal tax deduction that applies to any sale of a main home also applies to your NYS tax bill.
Additionally, any sale of property in New York is also subject to transfer taxes. The New York State Transfer Tax is set at a rate of $2 for each $500 (0.40%) of the sale price.
An additional tax of 1% of the sale price applies to residences where the consideration is $1 million or more, also known as the mansion tax.
Note: There are also state & local tax considerations for NYC residents. Depending on the sale price of your property, an additional transfer tax is applied. See NY tax rates here: https://www.tax.ny.gov/bus/transfer/rptidx.htm
Example of a Home Sale in New York
A married filing jointly couple living in New York meets the eligibility criteria for the sale of their main home and sells their property for $900,000 netting a $350,000 gain after fees and expenses.
The initial gain on the sale of the home is considered taxable but since they meet the eligibility criteria, they receive a $500,000 deduction, eliminating the entire taxable gain.
From a New York State perspective, the transfer tax applies to the total sale price of $900,000. The total tax in this simple situation would be $3,600.
Conclusion
Tax laws related to the sale of your home can be very nuanced depending on the exact scenario you are in but, Super Value Accounting can help you figure it out. Reach out to us today for a consultation or fill out our individual tax questionnaire to better understand your situation.
