Do you know everything you need to know about taxes before selling your house in Missouri? You might think you’re up to speed but there are a lot of tax factors worth considering, not to mention the oft-changing tax code and how that impacts your specific situation. The truth is that taxes can present a confusing aspect of the home-selling process to anyone, especially if you’re not an accountant by profession. It’s not entirely uncommon for first-time sellers to forgot to account for all the taxes they might have to pay when selling a Missouri house or property.
Let’s take a closer look at some tax tips for selling a house in Missouri. Of course, the easiest way to avoid paying taxes on your home sale is to skip the housing market and sell your house as-is to a real estate solutions company like Offer House. We buy houses like yours all the time and we pay cash for them in their current condition. But if you want to take your chances on the housing market, we want to make sure you’re prepared for any potential taxes on the horizon.
Taxes When Selling A House In Missouri
Capital Gains Tax
If you don’t know about anything else when it comes to taxes and selling your house, you’ll want to understand what capital gains tax is and how it works. Capital gains are the appreciation that eventually becomes your profit when you sell your house. Essentially, this is going to be the difference from the price you paid for your Missouri house and the sale price that you sold it for. The amount more that you are left with is capital gains.
As far as what your capital gains tax rate is, that depends on your income. Depending on how much money you make, it could be zero percent, 15 percent, or 20 percent. Obviously, the more money you make, the more likely you’ll have to pay more in capital gains taxes.
How To Avoid Capital Gains Tax
Now, the important thing to know about capital gains taxes is that it’s entirely possible for you to legally avoid paying them altogether. Per federal law, the first $250,000 that a single filer (or $500,000 from joint filers) in capital gains can be considered tax-free under a certain tax exclusion. However, there are some very specific things you will have to prove to get that exemption.
First, you’ll have to provide that you have lived in that house or property for at least two of the past five years and that you haven’t claimed this exclusion on a different property or residence within the past two years. There are some other requirements related to servicemembers, as well as those who are selling a house involved in a death or divorce, so make sure you get up to speed on those and don’t make the wrong choice.
Also, it’s worth noting that if you have capital gains above and beyond the $250,000/$500,000, you will still have to pay capital gains taxes on that amount even if you receive the exemption.
Home Sale Documents to Keep Handy
Whether you qualify for a capital gains tax exemption or not, you must collect and keep all of the important documents that you get when selling your house in Missouri. You may be asked to provide some or all of them to the IRS as well as the Missouri Department of Revenue to prove whatever tax amounts you pay are the correct ones.
If you didn’t qualify for the exemption, the sale of your house is going to be reported to the IRS on what’s called a 1099S form. You’ll get this in the mail so keep an eye out. If you don’t receive it, talk to your real estate agent about it.
Another form you’re going to receive in the mail after the sale of your property is the 1098 form. That will have your mortgage interest paid on the year listed. If you don’t meet the requirements of the tax exemption, you can apply this interest to your cost basis in order to lower your overall tax burden.
Not a tax form, but you’ll want to keep the settlement statement for your home sale handy. You may know this as the HUD-1 or closing disclosure statement as well. Either way, it’s the form that lists out the many costs incurred throughout the home sale process. You’ll also want to keep any and all receipts or records that prove the costs incurred during this process. If you made renovations or repairs in preparation for the home sale, you’ll want to be able to point to that as you show the IRS a lower home sale tax liability.
And as previously mentioned, proving primary residency is important if you’re trying to qualify for the capital gains tax exemption. How do you prove you lived in the house in question? Receipts. We’re talking about utility bills, bank statements, government forms like voter registrations, and tax returns. Anything that can back up your claim of residency.
Missouri State Taxes
While states impose a document transfer fee, which is also known as a real estate transfer fee or stamp tax, Missouri does not. So that’s the benefit of selling a house here.
Along with the federal capital gains tax, you’re going to have to pay a Missouri state version as well. The state doesn’t make any difference between the long-term and short-term gains and doesn’t factor in how long you’ve owned the property. Ultimately, you’re taxed at the rate you’d pay on anything else related to your income.
While Missouri’s tax system is progressive, the brackets along the way are very small. There are 10 brackets that you’ll fit into, starting at 1.5 percent. However, you’ll pay a six percent rate on any Missouri income that is taxable above $9,000. So keep that in mind when calculating your final costs above and beyond what the IRS is going to need.
Avoid Paying Taxes Altogether
Given all of the costs and potential issues that come with paying taxes when selling your house in Missouri, it’s understandable that you might think it doesn’t even seem worth it. However, if you want to sell your house fast and avoid paying many of the taxes that will cut into your profits, consider selling your Missouri house as-is to Offer House.
We buy Missouri houses and we’ll buy your house in any condition or situation, even if you’re already dealing with tax issues. We’ll review the details of your property and find the time to meet you fast. Don’t worry about repairs, we’ll deal with all the issues inside and outside the house so you don’t even need to worry about it. We’ll also make you a fair cash offer based on the value of your property. Even better, there are no fees beyond that offer. No mortgages. No real estate agent commissions. And you can cut out most of all of the taxes involved. Once you accept the offer, we close as fast as you want and we will pay you cash for your Missouri house!
Contact us today to get started and get your no-obligation offer ASAP!