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Comments on Income tax when selling a house
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Income tax when selling a house Question
When an ordinary person sells their house in the US, what happens to their tax situation? Usually, houses sell for half a million and up, and considering also regular (ie. salary) income, this would put one's income at a very high level for that year. Since the government taxes around 40% at higher brackets, does that mean that when you sell your house the government takes ~30-40% of that money?
Post
No, because you get to account for the basis.
If you bought a house at \$300k and later sold it for \$500k, then only the $200k profit is under consideration for income taxes. Further, the federal government taxes regular income (like your salary) and longer-term investment income at different rates. I do not know if house-sale proceeds are long-term capital gains or a different category (it's been a while since I sold a house), but it's not the same rate as salary.
(I very much hope that someone will provide a better answer that supersedes this one.)
In the common case of selling a house and buying a house (you still need a place to live, after all), you can also use the tax benefits from the purchase to mitigate the tax impact of the sale, if both events happen in the same tax year.
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