If you’re selling your home, you’re probably eager to close the deal and start fresh in your new space. But before you pop the champagne, there’s one important detail you shouldn’t overlook: taxes when selling your home in Ohio. While it may not be the most exciting part of the process, understanding taxes when selling your home in Ohio ahead of time can save you a lot of money—and stress—down the road.
One of the biggest factors to consider is whether you’ll owe capital gains tax on the profit from your home sale. If you made a significant gain, the IRS may want a piece of it. Fortunately, many homeowners qualify for a capital gains exclusion—up to $250,000 for single filers and $500,000 for married couples filing jointly. To qualify, you generally need to have owned and lived in the home as your primary residence for at least two of the past five years.
If your profit exceeds the exclusion or if the home wasn’t your primary residence, you could owe capital gains tax on the amount above the threshold. That’s why it’s smart to keep records of your original purchase price, closing costs, and any improvements you’ve made to the property, as these can reduce your taxable gain.
It’s also important to factor in Ohio state taxes. While Ohio doesn’t have a separate real estate transfer tax, any federally taxable gain may also be subject to Ohio state income tax. That means the profit from your sale could impact your state tax return, too.
When it comes to taxes when selling your home in Ohio, a little planning goes a long way. Speaking with a tax advisor can help ensure you’re taking advantage of all available deductions and exclusions—so you can move on with confidence and keep more of your profit.
The Likelihood of Paying Taxes on the Sale of Your Home
If your home has appreciated significantly over the years—as many have, especially between 2020 and 2022—you could be in for a nice payday when you sell. But before you celebrate the profits, it’s important to understand how taxes when selling your home in Ohio might affect your bottom line.
Your home is considered a capital asset, and any profit from the sale may be subject to capital gains tax. In simple terms, capital gains are the money you make from selling something of value—like real estate, stocks, or other major assets. So, yes, that profit from your home sale could mean owing money to the IRS.
The good news is that many homeowners qualify for a capital gains tax exclusion. If the property has been your primary residence for at least two out of the last five years, you may be able to exclude up to $250,000 in gains if you’re single—or $500,000 if you’re married and filing jointly.
But here’s where it gets tricky: with the rapid rise in home prices in recent years, especially during the pandemic housing boom, it’s not uncommon for homeowners to exceed those exclusion limits. If your gain goes over that threshold, the portion above it could be taxed.
Beyond federal taxes, you’ll also want to be aware of Ohio state income taxes. While Ohio doesn’t charge a specific real estate transfer tax, any taxable gain at the federal level is also likely to be taxed by the state.
Understanding taxes when selling your home in Ohio is critical to making smart financial decisions. You’ve built equity over time—don’t let unexpected tax bills catch you off guard. Talk to a tax professional early in the process to make sure you keep as much of your profit as possible.
How Capital Gains Taxes Work
Now, let’s look at how capital gains taxes work and how they apply when selling your home.
“A capital gains tax is a tax placed on any profits earned when a capital asset is sold. The IRS considers almost everything you own and use for personal or investment purposes to be a capital asset. These taxes are due on the tax deadline after the asset is sold, and it applies to investments like stocks, bonds, and real estate.”
In addition, the IRS has two categories for capital asset gains: short-term gains and long-term gains. When it comes to selling your home, if you’ve lived there for less than a year, you’ll have a short-term gain. If you’ve lived in your home for a year or longer, the gain is considered long-term. When you sell your home, then, “the capital gains tax depends primarily on how long you’ve owned the home and your income.”
“If you have a short-term gain, you’ll be taxed at whatever your normal tax bracket is. A long-term capital gain gets preferential tax treatment and is taxed at a rate of 0%, 15%, 20%, or 28%. These rates vary according to your income and tax filing status. . . . And if you meet certain conditions, you can exclude the first $250,000 to $500,000 from the sale of your home and avoid paying taxes on it altogether.”
How to Avoid Capital Gains Tax
When selling your home, you may indeed be subject to capital gains taxes, but the IRS does allow certain exclusions you may qualify for as a home seller.
According to industry experts, “[i]f you meet certain requirements, you can exclude $250,000 from the sale of your home. That number increases to $500,000 if you’re married and filing jointly.”
For such an exclusion, you’ll have to meet these qualifying criteria . . .
- “You’ve owned the home for at least two years during the past five years prior to the sale (this doesn’t have to be continuous). If you’re married and filing jointly, only one spouse needs to meet this requirement.”
- The home was your principal residence for a minimum of two of the five years prior to the sale. For those married and filing jointly, both spouses must meet this requirement.
- “You haven’t sold another home during the two years before the sale, or — if you did — you didn’t take the exclusion of gain earned from it.”
If you think you may qualify, be sure to consult an Ohio agent. To discover more, call 614-810-7355.
Special Circumstances
Even if you don’t meet the criteria delineated above, you still may be able to claim a full or partial exception on selling your home in Ohio. The special qualifying circumstances here include . . .
- Gaining ownership of the home during a separation/divorce
- If your spouse died during your ownership of the home
- Owning a “remainder interest” in the home when selling
- Having your previous home condemned
- Being a service member during your ownership of the home
- Releasing the home in a “like-kind” exchange
Calculating Capital Gains Tax
If, on selling your home, you want to calculate your probable capital gains tax, you will need to determine the cost basis for the home.
The cost basis includes what you spent to buy the home, as well as any money spent on improvements over the years. “For instance, if you purchased a home for $300,000 and spent $50,000 on home improvements, your cost basis is $350,000.”
“From there, you can add up the purchase price of the home, minus certain fees you paid for things like closing costs and the services of a real estate agent. Then you can subtract your cost basis from any money you earned from the sale.” This will yield the amount subject to capital gains tax.
Get Professional Assistance
If this capital gains tax business seems complex and complicated, that’s because it certainly is. So when selling your home, be sure to consult a tax professional and an experienced Ohio investor. We can guide you through the basics to help you arrive at the best outcome when you sell your home. So if you have concerns about the tax implications of selling your home in Ohio, be sure to contact us at 614-810-7355.
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Disclaimer: This blog post is for informational purposes only and should not be considered legal, financial, or tax advice. While we strive to provide accurate and up-to-date information regarding taxes when selling your home in Ohio, tax laws and regulations can change and may vary depending on your individual circumstances. We recommend consulting with a qualified tax professional, financial advisor, or attorney before making any decisions related to the sale of your property or your specific tax situation. Property Peace is not responsible for any actions taken based on the content of this blog.