Before selling your home in Asheville, or anywhere in North Carolina, it is important to understand precisely what taxes you may be responsible for. The answer to this question is going to be different for different situations, so here's what you need to know:
Prorated Property Taxes:
This money is going to Uncle Sam whether you sell or not, yet it is still taxes that you may be responsible for at the closing table. In North Carolina, our annual tax liens are filed on the first of the year, and our bills are mailed out in August. So, depending on what day of the year you close, and whether or not you've paid your bill, you may owe the buyer money, or they may owe you money. The amount will be a proration of what is due/paid.
According to the NC Register of Deeds, "an excise tax is levied on each instrument by which any interest in real property is conveyed to another person." This means that when you sell your home, you have to pay this tax at closing to the state of North Carolina. The way that you can compute this is by multiplying the selling price of your home by 0.002. So, if your home sells for $300,000, you would multiply 300,000 x 0.002 to get an excise tax amount of $600. This amount will be collected at the closing table.
Capital Gains Tax:
This is the big one, and the reason many people should consider having a plan for their profit at closing. Capital gains tax is going to typically cost you 15% - 20% of the profit on your house depending on your annual income. So, if you sell that same $300,000 house, you could be responsible to pay the government $60,000!
Thankfully, there are ways to get out of paying capital gains tax. In fact, if this is your MAIN HOME, and you have lived in it for 2 out of the last 5 years, you don't have to pay anything on the first $250,000 ($500,000) if you are married. However, if you are selling your vacation rental, or any other property and don't want to pay all that tax to the government, you can take an advantage of an intermediary who will charge you something to the tune of $1000 to do a 1031 Exchange. Section 1031 of the IRS code allows you to reinvest your money into a like-kind property and defer the taxes. This can be a complicated process, so I will likely write a second article completely dedicated to the exchange process.
In the meantime, give us a call if you want help deciding on whether or not selling your house will be a financially smart idea. (828) 707-5642.