The tax on a Maryland home sale depends on your profit, how you used the house and whether you qualify for an exclusion. A qualifying main-home sale can exclude up to $250,000 of gain, or $500,000 for a qualifying married couple filing jointly. Property-tax prorations, deed taxes and existing tax liens are separate questions.
The offer tells you what someone will pay for the house. It cannot tell you the tax bill or what you keep after title pays the balances. You need separate estimates for those amounts.
How much capital gains tax is due on a $300,000 house?
Selling a house for $300,000 does not mean you made $300,000 in profit. To calculate the gain, subtract eligible selling expenses from the sale price, then subtract your adjusted basis. Basis usually starts with what you paid and changes for qualifying improvements and other items. Inherited homes and former rentals need particular care.
For a simplified example, a $300,000 sale less $20,000 in eligible selling expenses and a $200,000 adjusted basis produces an $80,000 gain before any exclusion. This example assumes those expenses and that basis are correct. A mortgage payoff does not reduce the gain calculation.
The calculation works the same way on a $250,000 sale. Your loan balance helps determine what you receive at closing. Your basis helps determine the gain. Give a tax professional your purchase records, improvements and selling expenses before deciding how much to reserve for tax.
Who qualifies for the home-sale tax exclusion?
IRS Topic 701 explains the main-home exclusion. Generally, you must have owned and used the house as your main home for at least two of the five years before the sale. You generally cannot have claimed the exclusion on another home sale in the previous two years.
For the full $500,000 joint exclusion, at least one spouse must meet the ownership test and both must meet the use test, along with the other eligibility rules. Special circumstances can change the available exclusion. Rental use and depreciation also need review.
A qualifying owner in the $80,000-gain example may be able to exclude the whole gain. Another owner with the same sale price may owe tax. If you receive Form 1099-S, the IRS requires reporting the sale even when the gain is excludable. Publication 523 covers the details.
Does Maryland charge a separate capital gains tax?
Maryland generally taxes capital gains included in taxable income at its ordinary income-tax rates, with local income tax also relevant. The tax due depends on your full return, residence and applicable adjustments. A cash sale does not create a special exemption.
The Maryland Comptroller also describes an additional 2% tax on qualifying net capital gains when federal adjusted gross income exceeds $350,000. Certain assets are exempt from that additional tax, including qualifying primary residences sold for less than $1.5 million. That exception concerns the extra 2%, not every income tax on a sale.
If you own a house in Parkville or Severn, take your expected sale price and property records to a tax professional. They need to know how you used the house and how you file. The offer alone leaves those questions unanswered.
Why are property taxes and HOA dues on the closing statement?
Sellers often forget that title has to account for property taxes and HOA dues covering their period of ownership. Depending on the billing cycle, payments already made and the contract, a proration can be a charge or a credit. HOA dues are separate from IRS income tax.
Owners have told us those lines surprised them at closing. In our purchases, you remain responsible for your ordinary property-tax and HOA prorations. We sometimes agree to cover certain overdue amounts, depending on the balance. That agreement needs to be in writing.
Ask title for a seller estimate showing each balance, credit and deduction. Compare the amount you receive after those items with the amount you may need to reserve for income tax later. A settlement estimate and an income-tax estimate answer different questions.
What happens if title finds an IRS lien?
On one of our previous deals, the seller was in pre-foreclosure. Title work uncovered an approximately $80,000 IRS lien. The deal did not close as planned because the money the seller expected to receive would have gone toward that liability.
That was an existing tax debt. The sale had not created an $80,000 tax bill. The IRS explains that selling property with a federal tax lien can require satisfying the lien or obtaining an approved discharge of the property. An attorney or tax professional needs to review the specific situation with title.
Memorable Home Buyers can make an offer on a house with liens. What you keep depends on the balances title confirms. Call or text 443-363-0949 for a cash number on your Parkville or Severn house. We can explain our offer while title checks what needs to be paid.
Related reading
These pages cover the purchase options, settlement expenses and title issues behind the tax questions.