What is Capital Gains Tax?
This is the tax imposed on the profit (capital gain) from the sale of an asset.
Will You Have to Pay Taxes When You Sell Your Home in Hawaii?
When you sell your property, there’s no sales tax assessed by either state or federal authorities. However, should your property have increased in value from the time of purchase or acquisition, you might be liable for capital gains taxes.
If you are thinking about selling your home, it’s important to understand your capital gains tax. Our goal is to educate you on your capital gain tax liability so you know your capital gains tax liability. This will help you to make an educated decision on your best route. We believe in creating plans to help you defer or eliminate capital gains taxes if that’s important to you.
Real Estate Capital Gains Tax Calculator
Formula to help you calculate your capital gains taxes.
Net Selling Price – Adjusted Cost Basis = Capital Gains
(Selling Price – Cost of Selling) – (Cost Basis + Improvements – Depreciation) = Capital Gains
Definitions:
- Cost of Selling: Commission + Closing
- Cost Basis: Price you Bought at or Price it was transferred to You
- Improvements: Alterations, renovations, or additions to a property that enhances its value with receipts.
- Depreciation: For investment properties
- Capital Gains Tax: Capital Gain multiplied by Tax rate (rates will vary based on tax brackets)
Example:
Selling Price of $1,000,000 – Cost of Selling $70,000 (1% for closing costs + 6% for commission) = Net Selling Price of $930,000
Cost Basis of $200,000 (Price we bought the home) + Improvements of $100,000 (New Flooring, Renovated Kitchen and Bathrooms) = Adjusted Cost Basis of $300,000
Net Selling Price of $930,000 – Adjusted Cost Basis of $300,000 = Capital Gain of $630,000
Capital Gain of $630,000 multiplied by tax rate of 30% = Capital Gain Tax of $189,000
Short Term Capital Gains Tax on Real Estate
Short-term is gain on properties held for one year or less. Short-term gain is taxed at ordinary income tax rates, depending on your income bracket.
Long Term Capital Gains Tax on Real Estate
Long Term is gain on properties held for more than one year.
Long-Term Capital Gains Tax (Federal Brackets)
- 0% rate for individuals with an income up to $44,625, or married couples filing jointly with an income up to $89,250.
- 15% rate for individuals with an income between $44,625 and $492,300 or married couples filing jointly with an income between $89,250 and $553,850.
- 20% rate for individuals with an income over $492,300, or married couples filing jointly with an income over $553,850.
Hawaii’s Capital Gain Tax:
Hawaii’s Capital Gain Tax on Real Estate is 7.25%
Net Investment Income Tax:
An additional 3.8% tax might apply to your investment income (including capital gains) if your modified adjusted gross income is above certain thresholds.
- Married filing jointly — $250,000,
- Married filing separately — $125,000,
- Single or head of household — $200,000, or
- Qualifying widow(er) with a child — $250,000.
Because tax laws are complex and subject to change, and individual circumstances can greatly affect tax liabilities, consulting with a tax professional or financial advisor is recommended.
Real Estate Tax Exclusion:
IRS section 121 allows you to have an exclusion on your capital gains. You may qualify for $250,000 for a single person and $500,000 for married, filing jointly on your capital gains.
To qualify for this exclusion you must have lived in your home for at least two out of the last five years prior to its date of sale. In addition, if you sell a home and use the exclusion, you generally need to wait at least two years before you can use it again on a different home.
How the IRS may validate if it’s your primary residence (the home you live in).
The addresses listed on your:
- U.S. Postal Service
- Voter Registration Card
- Federal and State Tax returns
- Driver’s license or car registration
We are not CPA’s | Please Seek the advice of your CPA