We Buy Houses In Columbus, Ohio! Are you thinking about selling your Columbus OH house? Depending on your property and how it has appreciated in value, capital gains taxes may become a major factor. However, there is a way to defer your taxes! As experienced homebuyers in Ohio, we’re here to help you understand how to legally minimize your tax burden when selling your Columbus property.
What Are Capital Gains Taxes?
While making a substantial profit on the sale of your home is exciting, Uncle Sam will want his share. Capital gains taxes are assessed based on the difference between what you originally paid for the property and what you ultimately sell it for. These taxes don’t just apply to real estate—they are also imposed on the sale of stocks, bonds, vehicles, boats, and other valuable assets.
However, when it comes to real estate sales, there are exclusions that can help sellers reduce or eliminate capital gains taxes. You may be subject to capital gains taxes if:
- You are single and make more than $250,000 in profit from the sale of your home.
- You are married and make more than $500,000 in profit from the home sale.
How to Reduce or Defer Capital Gains Taxes
If your profit exceeds these thresholds, keeping track of your home improvement expenses can be beneficial. Any money spent on renovations, major repairs, and improvements can be added to your cost basis (the total amount you’ve invested in the property), ultimately reducing your taxable profit. This is why it’s crucial to save all home repair receipts—they can make a significant difference in your tax liability when it’s time to sell.
At first glance, these capital gains tax thresholds may seem high, but consider this: A home purchased years ago for $150,000 and sold today for $550,000 would easily fall into taxable territory.
If you’re looking to defer capital gains taxes on your home sale, one of the best strategies is to utilize a 1031 exchange. This allows you to reinvest your proceeds into another property of equal or greater value, postponing your tax obligations and keeping your investment working for you.
What Is “1031 Exchange” In Columbus OH?
You may have heard of a 1031 exchange before, but do you fully understand how it works and how it can benefit you? This tax-deferral strategy allows real estate investors to reinvest the proceeds from the sale of one property into another similar property, effectively postponing capital gains taxes that would otherwise be due upon the sale.
By utilizing a 1031 exchange, you can keep more of your profits working for you, rather than paying a hefty tax bill immediately. This strategy is commonly used by experienced investors to grow their portfolios, upgrade their properties, and build long-term wealth while avoiding unnecessary tax burdens.
How Does a 1031 Exchange Work?
The process of executing a 1031 exchange is relatively straightforward, but it does come with specific requirements that must be met in order to qualify for the tax deferral:
- Like-Kind Property: The new property must be of the same nature or character as the one being sold. For example, an investment property must be exchanged for another investment property, rather than a personal residence.
- Timing Requirements: Once you sell your property, you have 45 days to identify a replacement property and 180 days to close on the purchase.
- Qualified Intermediary: A third-party facilitator, known as a qualified intermediary (QI), must handle the transaction to ensure compliance with IRS regulations.
While the process requires careful planning and strict adherence to IRS guidelines, successfully executing a 1031 exchange can result in significant tax savings—potentially saving you thousands or even tens of thousands of dollars.
To Qualify In Ohio
The qualifications of a 1031 exchange are pretty standard. You must have lived in the property for at least 2 of the past 5 years and it must be your primary residence. You will not be able to use it if you have claimed this exclusion on another property within the past 2 years or if you have purchased another property using a 1031 exchange within the past 5 years.
In addition, the property you purchase must be of like kind. This is a pretty broad term. You can sell a piece of land and reinvest in a house. Or maybe you want to sell a duplex and buy land to develop. Any of these options will fly.
Sell My House In Columbus OH
At Homesmith, we work with 1031 exchange customers all the time! We are professional home buyers and we offer cash for houses in Columbus and throughout Ohio. We have a wide array of properties available at any given moment! Our inventory changes daily, with many types of properties to choose from. If you want to sell your house in Ohio to avoid paying taxes on a piece of property, we are here to help you with a solution! We will walk to through the entire process, saving you thousands of dollars along the way!