Ready to sell my rental home fast in Houston, Texas? Great. But first, you need to fully comprehend the tax implications. Why, you ask? Well, if you don’t you could find yourself in a financial bind, thanks to a tax debt.
There’s a reason why so many consumers flock Texas to check out real estate. This state is known for having no income tax on properties. So they always invest in Texas real estate so as to take advantage of the zero tax rate on income properties.
To be clear, that doesn’t mean that Texas landowners don’t pay the federal tax on capital gains. They actually do, and it’s especially true for those selling rental properties.
The tax implications of selling my rental house in Texas
To understand the implications, you first have to understand the capital gains. So what are capital gains? In simple terms, this is the profit that you earn or generate after selling my rental home quickly.
Texas won’t follow up on this transaction, but the federal government will, because they need you to pay the capital gains tax. Plus, although we do have exemptions that limit taxation on these profits, you can only take advantage of them if you’re selling your primary residence.
In a nutshell, what you end up paying as tax on capital gains, will hinge on the following:
- How long you’ve owned the house
- How you use my home
- And if the property was a primary residence
The personal residence exemption
Was my house in Houston, Texas a personal residence? If yes, you’re eligible for the $250k annual income, if filing with a single status. If it’s a joint status, you’ll qualify for double that, including all the capital gains.
But what if you’ve lived in my house before renting it?
Let’s say you used my house as the primary residence for two years or more, and then rented it out. Sometime down the road, you decide to reach out to We Buy Fast Houston Houses for a great cash offer.
Once we close the deal, you won’t have to worry about paying the tax on capital gains because you once used the property as your primary residence. But it’s good to confirm what your situation is before making any moves. So reach out to your real estate attorney, agent, and accountant, before selling.
Short and long-term capital gains
The IRS realized that there are short-term real estate investors out there looking to capitalize on this capital gains exemption. It hence came up with a clear distinction between the two.
You won’t be worthy of an exemption if you’ve not owned my house in Houston, Texas, for more than a year. Even if you’ve lived there for 5 years, you still have to prove you were the legal owner and not a previous renter. If you can’t, you’ll only qualify for the short-term capital gains tax exemption.
We Buy Fast Houston Houses can help you understand tax exemptions in-depth. Just call or send us a message and we will get back to you.