Taxes the dreaded word. Taxes can be confusing, which is why usually people have someone do their taxes for them. But if you’re about to sell a property for a profit or inherited a home, you’re about to sell, you should be aware of one tax that may affect you-capital gains tax. We’ll help answer all your questions about what capital gains tax is, Kentucky capital gains tax on real estate, what the tax rate is in Kentucky, and so much more. It’s better to be prepared than surprised that you owe money upon the sale of your home. Below is all you need to know about Kentucky capital gains taxes, so let’s begin.
Capital Gains Tax In Kentucky: What You Need To Know
What is Capital Gains Tax
The first thing to cover is what Kentucky capital gains tax is exactly. Capital gains tax is applied when you sell an asset like a house and make a profit from the sale. There can be several things that this applies to, including stocks, bonds, jewelry, collectibles, and your car. Just like how you get taxed on the income you make, the government expects a cut from an asset you sell and make a profit from. To figure out your capital gain, the math would look something like this:
Sell Price – Purchase Price = Capital Gain.
Using that math, if you were to purchase a Kentucky home for $80,000 in 1990 and decided to sell your home today and someone buys it for $350,000, you would make a capital gain of $270,000.
$350,000 (sell price) – $80,000 (purchase price) = $270,000 (capital gain)
$270,000 is the amount you can be subject to paying federal capital gains on.
The good news is that some tax exemptions may apply to you that would change the amount you will have to pay, which we’ll cover later.
Latest Capital Gains Tax Rate in Kentucky
Besides paying a federal capital gains tax, you will also need to pay a state capital gains tax too. This is why many residences are asking, “how much is capital gains tax in Louisville?”. Each state has different capital gains tax rates, specifically for the state of Kentucky, the latest capital gains tax rate is 5.00%. To answer the question of “how much is capital gains tax in Louisville”? The answer is 5.00%.
Kentucky is ranked 27th in the United States for the highest capital gains tax rate.
So keep in mind, on top of what you will owe the IRS on capital gains, you will also be charged a state capital gain tax in Kentucky.
Capital Gains Tax Exemptions
To better answer what tax exemptions are out there, you first need to understand how the IRS categorizes your asset. The length of time your asset was owned may exempt you from paying all or a portion of your tax obligation.
The way the IRS categorizes and calculates your tax rate will be determined if your asset is considered long-term or short-term.
For an asset to be considered long term, it must be owned for more than one year.
A short-term assist is anything owned for one year or less.
A short-term capital gain is taxed as ordinary income, and long-term capital gains are taxed at rates of 0%, 15%, 20% depending on your tax bracket.
Although, specifically for real estate there is a tax exemption for people who have lived in their homes longer than two years and claim it as their primary residence.
Primary Residence Tax Exemption
Capital gains on the sale of a primary residence are taxed differently from other real estate, due to a special tax exemption. Basically, the first $250,000 of an individual’s gain on the sale of a home is excluded from their income for that year, as long as the seller has owned and lived in the house for two years or more. For married couples filing jointly, they can exclude up to $500,000.
To qualify for this special exemption, though, you must meet these criteria.
- The house must be your primary residence.
- You must have owned the property for at least two years.
- You must have lived in the residence for at least two of the past five years.
- You cannot have used this exclusion in the past two years.
Using the math above, if you sold your Kentucky home for $350,000 and gained $270,000 from the sale but filed jointly with your spouse, that amount is subject to the exclusion. But if you filed single, only $250,000 of that $270,000 would be excluded from you paying taxes on it, so you would owe taxes on $20,000. ($270,000 – $250,000 = $20,000).
Another way you can reduce what you owe on Kentucky capital gains tax on real estate is by deducting the cost of acquisition costs like survey fees, transfer taxes, and legal fees incurred from purchasing the home. Also, the improvements you’ve made over the years to your Kentucky property can be used to reduce the amount you owe. But the key is they must be home improvements, not ordinary repairs or maintenance. Not to mention you will need to keep all your receipts and documents showing the cost of the home improvements you’ve paid for over the years.
Keep in mind, though, if the asset you’re selling was owned for less than a year and you stand to make a capital gain, the amount you owe in taxes is taxed as ordinary income.
How to Compute Capital Gains Tax
If you’re having trouble figuring out what you owe on your capital gains taxes, there are some helpful capital gains tax calculators available online. To best answer what you would owe and how to proceed, seeking advice from a tax advisor would be beneficial. They can better answer any questions and clear up any confusion regarding your Kentucky capital gains tax. Also, they would be able to help you determine what exemptions you qualify for.
When it comes to selling a house, there are many cost variables you need to be aware of besides Kentucky capital gains taxes. For many Kentucky residences, when it comes to selling their home, they have to get the house ready to sell. Getting a house ready to sell may include finally addressing that leaky roof, a foundation problem, water in the basement, or termite damage, which can end up being very costly repairs. And depending on how you sell your Kentucky home, there may be realtor commissions and closing costs you need to pay as well. Ultimately when you sell your Kentucky residence you may owe thousands of dollars in agent fees, closing costs, repair expenses, and capital gains taxes.
→ Selling a house that needs work? Click here for helpful information.
To help offset some of these expenses, consider selling to an as-is buyer like Time Worthy Property Solutions. Although you still may be on the hook to pay Kentucky capital gains tax on real estate, you can at least save on repairs, realtor commissions, and closing costs by selling your home to Time Worthy Property Solutions.
When you work with Time Worthy Property Solutions, you wouldn’t even have to list your house, they can give you a cash offer for your home within 24-hours. Also, the cash offer for your home is to buy it as-is, with no repairs needed. They do not charge realtor commissions and will even pay closing costs. The other awesome thing about working with them is that you get to pick your closing date and move on your schedule. So if you need to sell quickly, they can close on your property within a week. They help reduce the stress, hassle, and uncertainty selling a house in Kentucky brings.
The material and information in this article is for general information purposes only. You should not rely upon the material or information within this article as a basis for making any business, legal or financial decisions. Be advised to seek the advice of a professional tax adviser regarding your capital gains taxes.