model house, coins and calculator on a table - tax when you sell a house in Memphis

Do You Pay Taxes When You Sell A House In Memphis?

When selling a house in Memphis, many sellers focus on the sale price and real estate agent commissions in terms of what they’ll have to pay. But what they might not be thinking about are the taxes involved in a real estate transaction in Tennessee. There are plenty of tax implications that you should be aware of when selling your house. Depending on your situation, they can have a real impact on how much money you walk away with and whether or not it’s even worth it to sell your house on the market. You might find that you’d be better off selling your house for cash in order to sell fast while avoiding fees and taxes.  Let’s take a closer look at the taxes that you’ll pay when selling your home and dig into how taxes are involved in selling a house in Memphis.

model house, coins and calculator on a table - tax when you sell a house in Memphis

What is Capital Gains Tax?

The most important tax issue you’ll want to know about when buying or selling a house in Memphis is capital gains tax. But what are capital gains and why are they taxes? Well, Capital gains are the profits you make as a result of any real estate purchase. There was a price that you bought your house for and then there’s the price you sold the house for. That difference, assuming you sold it for more than you paid, is the capital gain.

Capital gains tax is the tax that you’ll need to pay the federal government on the capital gains from the sale of your Memphis house. The amount of capital gains tax that you owe will depend on some conditions and variables. They include the current condition of your property to whether or not the buyer is a resident of the United States or from a different country. Each variable has an impact on the tax rate that you’ll pay. There are also lots of deductions available when it comes to selling your Memphis house, including those that come on fees paid for the origination of your loan application, closing costs, and points that were paid back on a loan in order to get a lower mortgage rate. You’ll want to work with a real estate expert or consult a real estate investor like Fair Cash Deal for help if you’re not familiar with these deductions.

In general, capital gains taxes end up at around 15 percent for U.S. residents who own a house in Tennessee. Depending on your income, you might end up paying 0% if your income is below the threshold or 20% if your income is above the threshold. Tennessee does not have a capital gains tax so the most that anyone selling a house in Tennessee will pay in federal and state tax rates will total 25 percent, which is ranked very low amongst U.S. states. 

Another quirk in the capital gains tax rules is that if the house was your primary residence for at least two years within the last five years (even if non-consecutively), capital gains are limited to $250,000 for an individual and $500,000 if the owners are a married couple. 

You’ll want to make sure you’re clear on how to report capital gains taxes, too. Look for them on Schedule D of your IRS form. You should note that if the property was owned for one year or less, the owner should report the home sale profits as short-term capital gain. If the house was owned for longer than a year, it would then qualify as a long-term capital gain. 

One of the major takeaways from all this is that it is in the best interest of the owner to live in their Memphis house for at least two years before deciding to sell it, whether that’s on the market or for cash to a real estate buyer. If you do that, it will give you more time to reinvest the capital gains from the sale of the house and bank on deductions.

Taxes When You Sell a House

Along with capital gains taxes, the biggest tax that you’ll want to know about when selling a house in Memphis is transfer taxes. If you decide to sell your house on the market or sell it for cash to an investor, you’ll want to make sure you know what they are before you get to the closing process. 

Transfer taxes are what is charged when you transfer the title of your house or property to a new owner. The tax rate is created based on the sale price of your house and can often be unique in each state or even each county. In Tennessee, the transfer tax rate is always $0.37 for every $100 included in the sale price of the transaction. However, transfer taxes also have a cap of $100,000, even if the price exceeds the amount that would necessitate a higher rate. 

So for example, if a house is valued at $250,000 when it’s sold and transferred to a new owner, the amount owed in transfer taxes would be $925. The buyer and the seller would have to come to an agreement on who will be responsible for paying that amount. 

To complete the transfer of a Memphis house, the property deed needs to include an oath from the buyer that includes the property value. The assessor will then use that value when they finalize the real estate tax assessment. The assessor can decide that the value is incorrect, at which point the buyer could be charged under Tennessee law with perjury. However, assuming everything checks out, the transfer taxes should be paid at the time of recording the property deed with the local office. 

Along with transfer taxes, you should make sure you’re aware of any other local tax concerns that need to be paid by either the buyer or seller. Make sure you look into Tennessee’s mortgage transfer taxes as the tax rate in the state is $0.115 for every $100 on the sale price. 

You might also be able to claim a $2,000 exemption on your property value, which would bring down all of these taxes. When you sell your Memphis house, you’ll receive a statement that details all of the closing fees and taxes that are owed. Before you officially close, verify that these fees have been noted in your statement. You’ll want to make sure any rebates you are owed have also been included. And don’t be afraid to ask for help or guidance from a trusted local real estate expert if you’re not 100% sure how to proceed.

Capital Gains Tax in Memphis

While capital gains are taxable at both the federal and state levels. The IRS and the federal government will tax capital gains at a lower rate than your personal income, but states tend to tax capital gains at the same rate they do for income. However, Tennessee does not tax either personal income or capital gains, which makes it an attractive state to sell property in. In fact, when you combine the federal and state tax rates, the most anyone will end up paying in capital gains in Tennessee is 25%, which puts it at 42nd overall out of 50 states. It’s also very possible you’ll end up paying 15% or even 0% depending on your income level. But regardless, you won’t pay capital gains to the city of Memphis or the state of Tennessee. 

how to avoid taxes when selling a house in Memphis

How To Avoid Paying Taxes When Selling a House 

Now that you know about the taxes involved when trying to sell your house in Tennessee, it’s a lot of information and a lot to take in. But there is another solution where you can sell your house and avoid these kinds of extra payments. You can sell your house as-is directly to a cash buyer like Fair Cash Deal.

We will buy your house in any condition or situation, even if you’re already dealing with tax or lien issues. We will review the details of your house and find time to meet you at the property as soon as you’d like. We’ll handle all the repairs so you don’t even need to worry about dealing with any of it. Then, we’ll make you a fair, no-obligation cash offer based on the value of your Memphis house. The best part is that there are no fees you’ll need to deal with as we don’t deal with middlemen like real estate agents. 

If you accept the offer, you set the closing date. Then, all you need to do is sign the contract and get your cash. We’ll help you sort out the taxes and we’ll walk you through any of the red tape surrounding them. Selling a house in Memphis can be tricky when it comes to understanding taxes but we want to make it as simple as possible while also giving you cash for your house!

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