There are a lot of things to consider when it comes to selling a house, like if you would like to sell by owner or hire a real estate agent, what your asking price should be if you should do renovations, and when is the best time to list your Nebraska property? Maybe you need to sell to downsize or upsize or get out of a challenging financial situation; regardless, you are probably doing the math and trying to figure out if you will walk away with a profit from the sale of your home.
While figuring out extra expenses that selling a house involves, make sure to check if you will owe a capital gains tax in Nebraska. You may be asking- what is a capital gains tax? How do I figure out if I owe a capital gains tax in Nebraska? Which are all great questions to be asking before you sell your home. Below we take a closer look at what there is to know about capital gains taxes in Nebraska.
What You Need To Knox About Capital Gains Tax When Selling A House
What is Nebraska’s Capital Gains Tax?
If you’re not familiar with what a capital gains tax is, don’t be alarmed, many people aren’t aware there is a Nebraska capital gains tax. Capital gains tax in Nebraska applies to any property you own that has a value, which is referred to as a capital asset. Capital assets can be a car or designer purse or a trademark or patent. Your house is also a capital asset. So when you sell your home, you might see a capital gain, and depending on your circumstances, you may need to pay a capital gains tax; that is if the sale of your property is more than what you initially purchased it for.
There are two types of Nebraska capital gains tax categories:
- A short-term capital gains tax applies to the sale of assets held for less than a year.
- A long-term capital gains tax applies to capital assets held for more than a year.
The rates for short-term capital gains taxes are higher than for the long-term.
Nebraska Capital Gains Tax On Real Estate
If you are subject to the capital gains tax, you will need to pay taxes on a percentage of the profit you made selling an asset (house). The rate you will need to pay depends on the type of asset you’ve sold, personal income, how long you have owned the asset, and how much money you made. However, you only need to pay capital gains taxes on extra income earned on the sale. You shouldn’t need to pay the assigned tax rate on the total of your home sale.
Here is an example to explain this better. Imagine ten years ago; you purchased a home for $250,000. You now want to sell your house because the property values in your area are higher than when you bought the home for. You put your house on the market and accept an offer for $350,000, which gives you a capital gain of $100,000 from the sale of your home. If your asset class and income put you in the 20% Nebraska capital gains tax bracket, you would pay 20% of your profit. That is 20% of $100,000, which is $20,000. You don’t need to pay 20% on the entire $350,000 sale since you had to spend $250,000 to purchase the asset.
Opposite to a capital gain is a capital loss. A capital loss happens when you sell a capital asset for less money than you purchased it for. So, for example, if you sell the home you purchased for $250,000 for $200,000, you would see a capital loss of $50,000.
It’s reasonable to assume that if you must pay capital gains taxes on your home’s sale, you should be able to deduct losses from your taxes. However, capital losses from the sale of a personal property that you live in are not deductible. You can only deduct losses linked with properties that you bought as an investment or rental property.
Capital gains taxes in Nebraska have specific laws that dictate how much you pay. An important thing to note about capital gains taxes is that you don’t owe them until you sell your investment. If your home value steadily rises over the years, you don’t need to include this as an appreciation of your income. The tax is only collected when you sell. This may allow you to offset your capital gains with capital losses by selling your investments at strategic times.
Another critical factor influencing how much you will pay in capital gains taxes on real estate is the amount of time you own the property. As we mentioned, there are two types of capital gains taxes: short-term and long-term. Let’s take a peek at how these different taxes apply.
Long-Term Capital Gains Tax
If you own your home for more than a year, you are subject to the long-term capital gains tax in Nebraska when you move forward with the sale. The specific percentage you will pay in long-term capital gains tax depends on your regular income. So the more money you earn, the higher the rate you will pay.
Long-term capital gain taxes are usually much more beneficial than short-term tax rates. If your income is lower, you might qualify for a 0% long-term capital tax rate. Long-term capital gains tax rates range from 0% – 20%.
Short-Term Capital Gains Tax
If you owned your home for a year or less prior to selling it, you are subject to short-term capital gains tax in Nebraska because the IRS considers short-term capital gains regular income. Meaning any profit from the sale of your home will contribute to your taxable income for the year. The profits can push you into a new tax bracket for the year and cause you to pay a higher percentage in taxes.
Let’s look at an example. Imagine that you earn a $50,000 salary, and you decide to sell to the home you owned for less than a year. You sell the house and see a capital gain of $30,000. When it comes time to do your taxes, the IRS considers your salary and the money you profited from the sale as regular income. You will need to pay taxes on a total of $80,000 for the year.
Short-term capital gains tax rates are higher than long-term rates. To determine the tax rates on short-term gains, they are the same as federal tax brackets and range from 10% – 37% for 2020, depending on your income.
The Good News About Capital Gains Tax In Nebraska
The IRS usually allows you to exclude up to:
- $250,000 of capital gains on real estate if you are single.
- $500,000 of capital gains on real estate if you are married and filing jointly.
For instance, if you bought a home ten years ago for $200,000 and sold it today for $800,000, you’d make $600,000. If you are married and filing jointly, $500,000 of that gain may not be subject to the capital gains tax (but $100,000 of the gain could be).
The Bad News About Capital Gains Tax In Nebraska
Your $250,000 or $500,000 deduction typically goes out the window, which means you will pay taxes on the whole gain if any of these factors are true:
- The house wasn’t your primary residence.
- If you owned the property for less than two years in a five-year period before you sold it.
- You didn’t live in the residence for at least two years in a five-year period before you sold it.
- You already declared the $250,000 or $500,000 deduction on another home in a two-year period before selling this house.
Still unsure how to calculate your capital gains tax? This tool might help Capital Gains Tax Calculator.
How To Avoid Capital Gains Tax On A Home Sale
Live in the home for at least two years
Keep in mind the two years don’t need to be consecutive. If you sell a home that you did not live in for at least two years, the gains will likely be taxable. Furthermore, selling in less than a year is especially costly because you could be subjected to the short-term capital gains tax, which is a higher rate than long-term capital gains tax.
See if you qualify for an exception
If you have a taxable gain on the sale of your property, you might be able to eliminate some of it if you sold the home because of work, health, or “an unforeseeable event,” according to the IRS. Check IRS Publication 523 for details.
Remodeling, additions, landscaping, new windows, fences, air conditioning, new driveway — they are all examples of things that can cut down on what you owe on your capital gains tax. But one way or another, you are paying something either the cost of repairs and renovations or capital gains.
Sell as-is to a cash buyer
If paying a Nebraska capital gains tax sounds like too much money to give away or a lot to deal with, there is another solution when selling your home. You could sell directly to a local cash home buyer such as Element Homebuyers.
We will review the details of your home, present you with a fair cash offer, close on the property as quickly as you want, and let you walk away with cash in your pocket without having to deal with any taxes, realtor commissions, or fees. Plus, we will buy the house in as-is condition, so you wouldn’t need to make any home improvements or worry about fixing any financial issues that exist with the property. Getting started is easy, and there is no obligation whatsoever if you would like to get an offer today.