Selling a house is a really big deal, with lots of legal issues that need to be resolved. And of course, you will be dealing with large sums of money.
And all that money will include paying taxes, costs that you are responsible for. So, understanding the tax implications is crucial for navigating the process smoothly.
In Arkansas, as in other states, selling a home can trigger various tax considerations, from capital gains taxes to potential deductions and exemptions like property tax.
This article explores the key aspects of taxation when selling a house in Arkansas, providing clarity on what you need to know about potential tax liabilities, exemptions, and reporting requirements.
Whether you’re a homeowner preparing to sell or just curious about the tax implications of real estate transactions, understanding these factors can help you make informed decisions and avoid unexpected surprises.
Let’s take a look at the rules that apply in general…
Do You Owe Taxes If You Sell Your Little Rock House?
When selling your house in Little Rock, you may wonder whether you need to pay taxes on the proceeds. The primary tax consideration is the capital gains tax, which is applied to the profit you make from selling the property.
However, some specific rules and exemptions can impact whether you’ll owe any taxes.
For most homeowners, the key tax break is the capital gains exclusion.
If the property sold was your primary residence, you might qualify to exclude up to $250,000 of capital gains if you’re single, or up to $500,000 if you’re married and filing jointly.
To be eligible for this exclusion, you generally must have lived in the home for at least two of the five years preceding the sale. This rule helps reduce or eliminate the capital gains tax liability for many homeowners.
If the sale of your home results in a gain that exceeds these thresholds, or if the property wasn’t your primary residence, you might need to pay capital gains tax on the amount exceeding the exclusion.
Additionally, if you have claimed depreciation on the property (such as if it was used as a rental property or another type of investment property), you may face depreciation recapture taxes, which are taxed at a different rate.
It’s a good idea to keep detailed records of your home’s purchase price, any improvements made, and the final sale price. These records help accurately calculate your capital gains.
For any home sale, consulting a tax professional is advisable, especially if your circumstances involve complex issues like rental properties or significant home improvements.
You’ll also want to consider how long it will take you to sell that house.
Now that we’ve covered the general rules on taxes when you sell your house, let’s look at the specifics for Arkansas.
What Taxes Are Owed When You Sell a House in Arkansas?
There are several types of taxes and fees involved when selling a house in Arkansas, most of which depend on the specifics of the sale. These are separate from any property tax you might owe.
The primary tax concern is capital gains tax, which is levied on the profit you make from the sale of the property. In Arkansas, as in other states, the federal tax treatment of capital gains applies.
You can use this worksheet to work through this question.
If the property was your primary residence and you meet the criteria for the capital gains exclusion, you could potentially exclude up to $250,000 of the gain if you’re single, or up to $500,000 if married and filing jointly.
Arkansas follows federal guidelines for capital gains tax but adds its own state-level considerations.
Arkansas taxes capital gains as ordinary income, so your gains will be subject to the Arkansas sales tax rates—2% to 5.9% as of 2024. This means even if you benefit from the federal capital gains exclusion, any gains that are taxable after the exclusion will be taxed at your marginal income tax rate at the state level.
Additionally, if the property was used (use tax) as a rental or for business purposes, you may face additional tax implications, such as depreciation recapture.
This can affect both federal and state taxes, so it’s crucial to account for any depreciation claimed during the period you owned the property.
Arkansas does impose a separate real estate transfer tax, but you should also consider other costs such as closing costs and any applicable local fees that might arise during the transaction.
There’s a whole bunch of stuff to unpack here. So take your time going over this.
And given these legal complexities, particularly with potential exclusions, depreciation, and varying state and federal rules, consulting a tax professional or real estate advisor is highly recommended to ensure compliance and to reduce your tax liability.
To help you with this, here are some ways you can calculate your taxes when selling a house.
Or, you can call Gary at 501-449-2897. He can do all of this for you, saving you time and hassle, and offering a quick cash sale when selling as is.
How Do You Calculate Taxes When You Sell Your Arkansas House?
Calculating taxes when you sell your house in Arkansas involves a few key steps to determine your capital gains and any associated tax liabilities.
First, you’ll need to establish the ‘basis’ of your property, which is typically the purchase price plus any significant improvements you’ve made over the years (the basis of an asset is its total cost to you).
The basis is used to calculate your capital gain by subtracting it from the sale price of the home.
Once you’ve determined your capital gain, you must consider the capital gains exclusion available for your primary residence.
If you’ve lived in the home for at least two of the five years preceding the sale, you may be able to exclude up to $250,000 of the gain if you’re single, or up to $500,000 if married and filing jointly.
This exclusion is applied before calculating any state or federal taxes owed on the remaining gain.
For any capital gains that exceed these exclusion limits, or for properties that do not qualify for the exclusion, you need to calculate the tax based on the amount of taxable gain.
At the federal level, long-term capital gains are generally taxed at a lower rate than ordinary income, typically 0%, 15%, or 20%, depending on your overall income level.
Since Arkansas taxes capital gains as ordinary income, these gains will be subject to the state’s income tax rates, which range from 2% to 5.9% as of 2024. You’ll include the taxable gain in your Arkansas state income tax return and apply the appropriate rate based on your income bracket.
Additionally, if you’ve used the property for rental purposes or have claimed depreciation, you may need to account for depreciation recapture, which is taxed at a different rate.
This involves including any depreciation deductions you’ve taken in previous years as part of your taxable income.
There is a lot to consider here, and some of it is confusing and complex. You don’t want to make any mistakes with regard to your legal responsibilities.
To ensure accurate calculation and compliance with both federal and state tax laws, it’s advisable to consult a tax professional who can provide guidance tailored to your specific situation.
Final Thoughts on Do You Pay Taxes When You Sell a House in Arkansas?
When selling a house in Arkansas, understanding the tax implications is very important to managing your financial outcomes.
The primary tax concern revolves around capital gains tax, which is applied to the profit you make from the sale of the property.
For your primary residence, you might benefit from the federal capital gains exclusion, allowing you to exclude up to $250,000 of the gain if single, or up to $500,000 if married and filing jointly, provided you meet the residency requirements.
However, if your gain exceeds these thresholds or if the property was not your primary residence, you will need to pay capital gains tax on the amount that is above the exclusion limit.
In Arkansas, capital gains are taxed as ordinary income, meaning the gain will be subject to the state’s income tax rates, which range from 2% to 5.9% based on your income bracket. This is in addition to any federal taxes owed, which are typically lower for long-term capital gains compared to ordinary income.
It’s also important to consider other factors such as depreciation recapture if the property was used for rental purposes, which can affect your overall tax liability.
And don’t forget your closing costs!
The complexity of calculating taxes from the sale of a house underscores the importance of maintaining detailed records of your purchase price, improvements, and sale price.
Consulting a tax professional can provide tailored advice and ensure that you’re accurately calculating your tax liability and taking advantage of any available exclusions or deductions.
By being informed and prepared, you can navigate the tax implications of selling your house in Arkansas more effectively.
If you’re looking for another way to sell that house, quickly and with little hassle, give Gary a call at 501-449-2897
FAQs Related to Do You Pay Taxes When You Sell a House in Arkansas?
What is the property sales tax in Arkansas?
The Arkansas sales tax is 6.5% of the gross receipts from the sales of tangible personal property and certain selected services.
Do you have to pay sales tax on a used mobile home in Arkansas?
No. You don’t pay any tax on the sale of a mobile home in Arkansas. Also, there is no sales tax on manufactured or modular homes.
Who pays real estate transfer tax in Arkansas?
Most states, including Arkansas, have a real estate transfer tax. While the law doesn’t state which party is responsible, in most cases it is the seller.
