Home Buyer Resources
What You Need to Know about Capital Gains
What do you know about capital gains? If you're interested in buying a home in Dallas, you should be aware that capital gains play a major role in both the buying and selling of your property. Let's discover how capital gains impact your home buying process.
An Overview of Capital Assets
Before we talk about capital gains, it's helpful to know what capital assets are. Just about everything you own and use — whether for personal use or investment purposes — is a capital asset.
This includes your furniture, your great-grandmother's favorite rocking chair, stocks and bonds, your personal bank account, and even your home.
What are Capital Gains?
When you sell your assets, the financial difference between what it cost you (called a "basis") and what you sold it for is either a capital gain or a capital loss.
If you sold the item for more than you bought it, that profit is called a capital gain. If you sold the item for less than you bought it, then that's a capital loss.
5 Facts You Should Know about Capital Gains
There's a lot you can learn about capital gains, but we're going to keep it simple. Here are 5 things you should know about capital gains when buying a home in Dallas, Texas.
5. You Must Report All Capital Gains
When you buy and then sell things that you own, you need to report it to the IRS. There are special forms you need to fill out in order to calculate capital gains or capital losses. This is so that certain taxes can be applied.
However, there are specific cases you do not have to report your capital gains when you sell your Dallas home. Skip below to see how capital gains impact your Dallas home purchase.
4. Capital Gains and Losses Can be Short-Term and Long-Term
If you buy and then sell a piece of property in a year or less, then it's considered in the short-term.
If you buy and then sell a piece of property and the timeline is greater than a year, then it's considered long-term.
3. Taxes Differ for Net Capital Gains
"Net capital gains" are when your long-term capital gains are greater than your short-term capital losses.
Taxes on net capital gains are usually no higher than 15% for most taxpayers in Dallas. However, there are a few differences for taxes on net capital gains:
- You pay no taxes on net capital gains if you're in the 10% or 15% ordinary income tax bracket
- You pay 20% on net capital gains if your taxable income exceeds the 39.6% ordinary tax rate threshold
- You pay 28% on net capital gains if you sell collectibles like coins or art
Net short-term capital gains, however, are taxed as ordinary income at graduated tax rates.
2. You Can Deduct Capital Losses in Certain Cases
If your capital losses exceed your capital gains in a year, you can deduct some of the excess loss from your tax return and reduce other income, such as wages, by an annual limit of $3,000 (or $1,500 if you're filing your tax return as "married filing separately").
If your net capital loss for the year surpasses this $3,000 limit, you can carry it over into the next year.
If you receive capital gains on the sale of your home, then that amount is subject to federal taxes. However, you don't need to report capital gains on your home in many cases. You can be eligible for tax breaks on your home (with capital gains up to $250,000) if:
- You owned your home and used it as your main residence at least 2 of the 5 years before selling
- You did not acquire your home through a 1031 "like kind" exchange during the past 5 years
- You did not claim an exclusion for your home's sale
Let Us Help You Navigate Your Dallas Home Search
We can provide you with detailed information about taxes and capital assets as you're looking for and buying a home in Dallas. Call us at 214-680-4550 or email firstname.lastname@example.org and we can get started.