taxes on home sale - all the taxes

[speakerfritz]

I see too many questions about tax on a home sale being answered with just capital gains related info......that would be an incomplete answer.   there are different taxes in a home sale that will apply

1. capital gains taxes .   this one is the generally answered question and asked the most.

2. transfer tax.  depends on your location.  nyc for example has a 1.8% transfer tax.

3. Morgage tax.  normally a buyers problem...but if you include that you as the seller will pay all closing costs..this could become your problem.

4.  the trickest one of all....income tax.  the net profits from the sale is also subject to income tax...this one is very misunderstood and folks will sometimes incorrectly apply capital gains logic as to how 1099-s income tax on profits are handled.

so when ever a question gets asked about tax implications of a home sale...the answer needs to include capital gains tax, income tax, at the very minimum and transfer tax and /or Morgage tax depending on the situation.

also, some folks are improperly advised to file separate to isolate the spouse from the tax windfall, but, there are things like SS IRMAA that will be levied on the spouse if the spouse files separate. a monthly SS IRRMAA surcharge that would have been 69 dollars per month will turn into 400 dollars a month just for filing separate.

proceed with cuation.

[jtax]

Welcome @speakerfritz 

the reason folks here probably focus on capital gains tax is because this site is about preparing income taxes. Transfer taxes/recording taxes are not really relevant except to the extent they increase one's basis in the property sold or exchanged.

Could you say more about the difference between your point #1 and #4?  The income tax applies to any "accession to wealth" absent an exception ... capital gains are just a subset of income that are taxed at a favorable rate.

[speakerfritz]

example.  house is inherited in jan 2021.   official paid assessment value is 700k.  3 years later the house is sold for 926k.

there is the usual     capital gains assessment discussion which we beat to death.

but the 226K difference between value at inheritance and value at sale is subject to personal income tax.   

related...if you are on SS, and you decide to file separate to isolate a spose from incorporating the 226k into their income...SS has a safety net which will max out your IIRMAA.   file joint and your IRMAA could be as low as 96 per month.....but..just by filing seperate...your IRMAA could be 396 per month  .

[jtax]

example.  house is inherited in jan 2021.   official paid assessment value is 700k.  3 years later the house is sold for 926k.

there is the usual     capital gains assessment discussion which we beat to death.

but the 226K difference between value at inheritance and value at sale is subject to personal income tax.   

I'm sorry I am not understanding what you mean. What are you saying?

That there is a capital gain tax AND a separate personal income tax?

That is not correct. There is only one income tax (assuming no business use of the house/rental income/depreciation expense etc.) -- the personal income from the sale, which is the net gain, and which is taxed at the preferential rate for income with a capital character not an ordinary income character.