The Tax Implications for Selling a House Below Market Value in Arizona
Selling your home for close to or above its market value is fine in an ideal situation.
However, when you need money fast, you may have to sell your home at a lower value than when you bought it. This will make your home sale quicker, which is great news since homes can stay on the market for as long as 51 days.
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With that said, there are some things you need to be aware of before you list your home for less than its appraised market value. One of them is the tax implications.
Learn more about the tax implications of selling an AZ house below its value. Also, stick around to the end to find out how to make the most of your home sale.
Why It May Be a Good Idea To Sell a House Below Market Value in AZ
There are certain scenarios where selling below market value is the advisable course of action.
First, selling below the market or assessed value can be a wise option if you want to sell your home fast. Your home can attract more interested buyers by pricing well below its appraised value.
Another scenario where selling below market value is advisable is when you can no longer afford to pay taxes on the property. Unless the home you’re selling is your primary residence, having a second one can only mean added overhead costs and property taxes. This is why selling an inherited home can make more sense if you don’t plan on renting it out or living in it.
First Tax Implication to Consider: Capital Gains Tax
Capital gains tax is one of the first tax implications of selling an AZ house below its market value.
Capital gains tax is the amount you owe the IRS for any profit you make off your home’s sale. You’ll have to deduct your home’s original sale value from the amount you sold it for to determine how much you need to pay. You’ll end up with your taxable profits.
For instance, if you originally bought your home for $300,000 and sold it for $400,000, your profit is $100,000. Under the IRS’s capital gain schedules, you may have to pay 15% to 20% of this amount in taxes.
You might wonder how the rules work when you sell at a loss (i.e., no profit). In such a scenario, you may still owe capital gains tax if your profit exceeds the amount you bought your home for.
To illustrate, imagine that you bought your home for $300,000. When you got it appraised and inspected three years later, its value increased to $400,000.
You sold your property for $350,000, so you still technically sold below market value. However, since you still profited $50,000, the IRS will still tax a percentage of it.
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Second Tax Consideration: Gift Tax
This rule takes effect when you sell your home below market value to a family member. Under the gift tax rule, the taxable income is any profit you made from the sale, just like in capital gains taxes.
Let’s illustrate how gift taxes work with an example.
Say your home was $250,000 when you sold it to one family member. However, you only sold it for $200,000, meaning your profit was $50,000.
The IRS can still collect taxes on this, but since gift tax rules have an exception amount of $18,000 per family member, you can deduct this amount from your profits. As a result, you’ll owe only $32,000 in gift taxes.
Final Tax Implication: Reassessment
There may be a chance of a property tax reassessment when you lower your house’s sale value. This can vary from one part of Arizona to the next, so you must enlist a tax professional before selling your home.
How To Get More Out of Your Home Sale
Taxes will always be there, whether we like it or not. However, you can still do things to ensure you get more out of your sale even when you sell your home below its market value.
Some steps you can take are:
- Leveraging exclusions (like the ones under the gift tax rule)
- Selling without a realtor to avoid commission fees
- Make as little repairs or renovations to your home as possible to avoid costs
For many, the third step is the trickiest. After all, who would want to buy a home if it’s showing signs of foundation or water damage?
That’s where we come in.
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Get Cash for Your House
Even when selling below market value, you can still get the most out of your home sale when you choose a cash home buyer.
Here’s what you can look forward to when you accept a cash offer for your AZ home:
- More Profit from the Sale: Selling your home for cash enables you to profit more since you won’t have to pay for realtor commissions or repairs.
- Faster Closing: Traditional sales can take months to close. However, cash home buyers will purchase your home in any condition and in as little as a week.
- A Guaranteed Sale with No Hassles: When you deal with a cash buyer like us, you can bet on a sale that can close in as little as a week.
Sell It Quickly to Our Team
At Andrew the Homebuyer, we buy AZ homes for cash and in any condition.
Get started today with a fast, fair, and free cash offer.
You can also find out how much we’d be willing to pay you with our home value estimator.
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