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I've heard that the government taxes heavily for situations when you sell your house and don't put that money into a new real estate transaction. Does anyone know how much it would be in the state of NJ, and how long you have before you're taxed?
Too many factors - did you own the home for more than 2 years and how much will you make on the sale... also, make sure you have all of your improvement costs over the years..paint, door knobs, windows, etc. This website has some great information and should help you figure out if you will be taxed or not. Capital gains and real estate sale: Tax rules give break to home sellers (Page 1 of 4)
You've heard a lot about "old law." Forget everything you were told. And I assume you're referring to a PRIMARY RESIDENCE and not an investment or vacation property or a "second home."
1) INCOME TAX: First, let's deal with INCOME TAX. Currently, you need not reinvest the proceeds at all, and the gain you've made is highly tax-savings advantaged. You'll likely pay little income tax, if any. It's really quite simple.
Assuming the house you're selling is your primary residence, (meaning you've owned and lived in the property for no less than two of the prior five years,) you may take a tax-free quarter-million dollar profit! (That's per owner, so a husband/wife owner may take a half-million tax-free!) You may do this no more often than once every two years. If you're a Jersey resident, the state also allows this tax-free gain -- (but please don't tell Governor Corzine!)
If your gain exceeds a quarter-million dollars, you must pay the appropriate income tax only upon the excess gain. Since you'll likely have owned the house for longer than one year, this will be at capital gain rates for your Federal tax. New Jersey gives no preference for capital gains, so the excess beyond the quarter-million is taxed at ordinary income tax rates for state purposes.
Income taxes are generally due by the 15th day of the month after the quarter ends in which you sell, (but June and quarter 2 are tricksters, so get appropriate counsel about timeliness).
2) REALTY TRANSFER TAX: Since the dawn of the 21st century, the state has aggressively raised rates for the REALTY TRANSFER TAX. It's a progressive tax, meaning the higher the price, the greater the percentage you'll pay. I'll leave it to your lawyer to give you the specifics on the rates, but it could be close to 1.25% of the sales price on a pricier home. Usually paid at the closing.
3) SALES TAX: Also, if the price exceeds one million dollars, the BUYER must pay a 1% real estate sales tax. Due at the closing.
Thank you for all the specifics, this is so helpful! To assist everyone, we've lived here for 1 year, and made major upgrades. Suddenly, a neighbor offered to buy our property at a price that we couldn't refuse. (no, we wouldn't be making over $500,000 on the property, but it would be nice!) I think I pretty much can apply all the rules above to our situation, but if anyone else has helpful answers, I'd appreciate them.
Thank you for all the specifics, this is so helpful! To assist everyone, we've lived here for 1 year, and made major upgrades. Suddenly, a neighbor offered to buy our property at a price that we couldn't refuse. (no, we wouldn't be making over $500,000 on the property, but it would be nice!) I think I pretty much can apply all the rules above to our situation, but if anyone else has helpful answers, I'd appreciate them.
In today's market, to sell for a profit after only one year is quite a coup! But be careful. If you haven't owned and lived in the house for at least two years, more restrictive rules apply. Seek appropriate legal and accounting advice before you sell.
I would like to sell my vacation home, owned since 2001 and no mortgage, and take the capital gains to pay off my primary residence and purchase a condo down south somewhere...The vacation home has never been rented...Will the state and fed still tax us if we reinvest the gains in real estate?
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Taxes or fees?
