Selling a house in Virginia can be confusing. Taxes are confusing. Combine the two and your mind is probably spinning. What taxes are there when I sell my home? When do I have to pay taxes? It is hard to find clear answers about what taxes have to be paid when you sell a home in Virginia, or anywhere else, but we will give you a good groundwork to start from.
Taxes When You Sell Your Virginia Home
Four Types of Real Estate Taxes
In general, there are Four types of taxes associated with Real Estate that buyers and sellers have to consider during a sale.
- Property Taxes
- Capital Gains Taxes
- Transfer Taxes
- Tax Recapture (applicable to investment properties)
The first type of tax, which everyone should be familiar with, are property taxes. Property taxes are the taxes levied against a property by the local government in order to fund most basic public services. Examples of such services are: Police Departments, Fire Departments, Emergency Medical Services, Trash Collection, Sewer & Water, and much more. Home owners are responsible for paying property tax for every day that they own a property, regardless if they are paid in advance or arrears. When you sell your Virginia home, you will be responsible to pay the property taxes for each day you owned your home up until the day of closing. Let’s look at an example:
Let’s say you sold your Virginia Home on September 1st, and your annual taxes due are $3000
A calendar year contains 365 days, therefore $3000/365 = $8.22 property tax per day of ownership.
At Closing on September 1st, you have owned the property for 244 days of the year and owe 244 x $8.22 = $2005.48
If you have paid any taxes already, such as part year or semi-annual payments, they will be deducted from that total amount.
For example, let’s assume you paid $1500 in semi-annual taxes in June, then you would owe from June to September 1st. $2005.48 – $1500 = $505.48
Here’s the tricky part. Are you taxes paid in advance or arrears? Some municipalities collect taxes in January for the upcoming year (paid in advance), while others collect taxes in December for the previous period (paid in arrears). In Virginia Beach, our taxes are paid in arrears.
- When taxes are PAID IN ADVANCE, you will get a REFUND of taxes already paid
- When taxes are PAID IN ARREARS, you will OWE taxes for the previous period up to the closing date.
Every locality is different, therefore property taxes can vary greatly from city to city and state to state.
Capital Gains Taxes
Capital Gains Taxes are taxes due to the government based upon profits derived from the sale of capital assets. Capital assets include stocks and real estate, among other things. When you sell an asset for a profit, the government lays claim to that profit, and taxes it depending upon a number of factors, including how long you owned the asset and how much profit was gained.
What Capital Gains Tax Will You Owe On The Sale Of Your Virginia Home?
Let’s look at an example: You purchase your home for $200,000 and later sell it for $400,000. This would yield a $200,000 capital gain, which would likely not be subject to Capital Gains Taxes.
Another example: You purchase your home for $200,000, and later sell it for $800,000. This would yield a $600,000 capital gain.
A single person would likely be responsible for the difference between the Total Gain and the Exemption. $600,000 – $250,000 = $350,000 would be subject to Capital Gains Tax.
A married couple however, have a $500,000 exemption, and therefore would likely only be responsible for taxes on $100,000 of Gains.
What Affects The Taxability Of Your Capital Gains?
In order to be eligible for the $250,000 and $500,000 exclusions, you will need to fulfill certain requirements, otherwise you will owe taxes on the whole capital gain.
- The house has to have been your primary residence.
- You have to have owned the home for at least two of the previous 5 years
- You cannot have already claimed an exclusion within the previous two years.
If you fall into one of these categories, you may be responsible for Capital Gains Tax on your whole Gain. Speak with a tax professional before selling your home.
What is Tax Recapture? If you are not selling an investment property, or a property used as a rental, then don’t worry about this section. Income producing real estate must be depreciated for tax purposes. This means that every year, the owner of the property gets financial credit for the depreciated value of the property. It is too complicated to explain here, but the big picture is that taxes are deferred during ownership, and must be Recaptured at sale. You can read more about depreciation here. How does Tax Recapture work when selling an investment property?
Each year of ownership, a portion of the property’s value is reduced, and the owner gets tax credit for it. Let’s assume you purchased a home for $200,000 and sold it 5 years later for $210,000. It appears that you made a $10,000 profit and therefore owe taxes on $10,000, but that is wrong. During those 5 years, the house depreciated by $37,037, and therefore has a purchase value of $172,962! This means that you have a profit of $37038 that you owe taxes on!
What else do you have to pay when you sell your home?
In addition to paying your prorated (daily) property taxes, in most places, and definitely in Virginia, you have to pay Transfer Taxes. In Virginia, this tax amounts to $1 per $1,000 of sales price. If you were to sell your Virginia home for $300,000, you would owe $300 in transfer tax at closing. Other closing costs include: The Title Agent, Attorney, Real Estate Agents’ Commissions, Deed Recording Fees, Mortgage Recording Fees, and often other administrative costs related to the actual closing. These Closing Costs can readily be 9% to 10% of your sales price!
There is another way- an Easier way
If you are planning to sell your Virginia home, and don’t want to wait months to sell your home, only to pay thousands in closing costs and real estate agent commissions, consider selling your home to a local home buyer like Academy Home Buyers. Academy Home Buyers purchase homes in as-is condition, saving you tons money on repairs and renovations, and months of selling. Take the guesswork out of whether your home will sell, and for how much, and how much money you will walk away with, by calling Academy Home Buyers and getting a solid cash offer right away.
About Academy Home Buyers
Matt and Jim are natural-born problem solvers. With nearly 40 years of combined public service, construction, and real estate, we are here to serve you. We are experts at helping you solve your real estate problems.