Understanding the Basics: Tax on Capital GainsWhen you’re considering selling a house, it’s important to factor in the potential tax liability you may face. Tax on capital gains is payable upon the sale of any real estate, whether it’s your primary residence or a rental property. The capital gains tax is based on the amount of profit you made from the sale of your property, which is calculated by subtracting your cost basis (the amount you initially paid for the property) from the selling price.
Massachusetts Tax Rate for Selling a HouseIf you’re selling a house in Massachusetts, you’ll have to pay state and federal capital gains tax on the profits you make from the sale. In Massachusetts, the tax rate for long-term capital gains (which applies to properties held for more than a year) ranges from 5.2 percent to 12.2 percent, depending on your income level. Short-term capital gains (for properties held for less than a year) are taxed at the same rate as your ordinary income, which ranges from 5.2 percent to 12.2 percent. It’s worth noting that Massachusetts also has a real estate transfer tax, which is typically split between the buyer and seller. This tax is based on the sale price of the property and can range from 0.23 percent to 0.46 percent, depending on the location of the property.
Federal Tax Rate for Selling a HouseWhen you sell a house, you’ll also have to pay federal capital gains tax on the profits you make from the sale. The federal tax rate for long-term capital gains ranges from 15 percent to 20 percent, depending on your income level. Short-term capital gains are taxed at the same rate as your ordinary income. It’s worth noting that there are some exclusions to federal capital gains tax that may apply to you. For example, if you’ve lived in your house for at least two of the past five years before selling it, you may be eligible for a $250,000 tax exclusion (or $500,000 if you’re married filing jointly). This means that you won’t have to pay federal capital gains tax on the first $250,000 (or $500,000) in profit from the sale of your primary residence.
Tax Exemptions: Eligibility and BenefitsOne way to lower your tax liability when selling a house is to take advantage of tax exemptions. In Massachusetts, there are several tax exemptions that may apply to you depending on your circumstances. For example, if you’re over 65 years old or disabled, you may be eligible for a property tax exemption of up to $1,500. Another common tax exemption for homeowners is the residential exemption, which can reduce the taxable value of your property by up to $175,000. This exemption is available to homeowners who use their property as their primary residence.
Some tax exemptions available in Massachusetts include:
- Elderly and disabled persons tax exemption
- Blind person’s tax exemption
- Military tax exemption
- Residential exemption
- Community Preservation Act (CPA) exemption