Sales tax is a tax imposed on the sale of tangible personal property, such as automobiles, household goods and clothing. Homes and land is a different class of property than personal property and isn’t subject to regular sales taxes. Homeowners who sell their homes aren’t necessarily free from taxation, however, and may need to pay capital gains taxes or a tax on the sale of high-valued homes, starting in 2013.
Capital Gains Tax
Capital gains taxes are taxes assessed against the net increase in value of the sale of any asset, tangible or nontangible. Real property such as homes are subject to the tax. The tax applies only to the profit of the sale, and the rate varies depending on how long a taxpayer held the investment: Long-term investments held longer than a year are taxed less than short-term investments. Homeowners may exempt the first $250,000 of the value of a principal residence – but not investment property – from gains taxes. This tax is paid not during the sale of the property, but when the original homeowner reports income to the Internal Revenue Service Schedule D of the Form 1040.
Health Care Reform Bill Real Estate Sales Tax
Beginning in 2013, some homeowners will owe 3.8 percent of the investment value of the sale value of their home when they sell it as part of the funding system for the health care overhaul. This tax applies only to investment income, also known as capital gains, received on the sale of a home, and many most taxpayers will be exempt from this tax. The first $250,000, or $500,000 for a married couple, in gains on a primary home is exempt from the tax, and the tax only applies to individual taxpayers with more than $200,000 of annual income or married couples with more than $250,000 in annual income. This sales tax is assessed to the seller, and paid when he files his Form 1040.
Because traditional sales taxes usually exempt real property sales, some states, such as Washington, or municipalities enacted an excise tax on the sale of real estate. These excise taxes effectively collect tax revenues in the same manner as sales tax, taxing the sales value of sold real estate. Instead of collecting it from the buyer in the transaction, however, municipalities usually place the burden of excise taxes upon the party selling the property, not those purchasing it.
Property taxes are another tax associated with home ownership, but they’re not assessed around transactions. State and local property tax assessments tax homeowners on the value of their home, as determined by an assessor using local market information and recent sales prices if the home was sold. Property taxes are assessed using a rate – usually known as a mil, or 1/1000th of a cent per $1 in value – against the assessed value of the home. Homeowners pay these taxes annually.
Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.