While not as fun as house hunting or as glamorous as remodeling a kitchen, home buyers and sellers should take time to understand the ins and outs of property taxes.
Your monthly mortgage payment often includes a portion of your property taxes and home insurance. Higher taxes translates into a higher payment for a home buyer. If you're selling your home, talk to an accountant about any taxes on gains and possible ways to offset them. While your local real estate agent can provide some insight, here is an overview of property taxes in Arkansas.
Will You Have to Pay Taxes When You Sell Your Home in Arkansas
If you stand to make a profit when you sell your home, do you have to worry about taxes? Unless you made gains above $250,000 for a single person or $500,000 for family you can relax, it's highly unlikely you'll have to pay taxes.
You must meet a few requirements to be exempt from paying federal taxes on your gains. Among them, the home must have been your primary residence and owned by you for at least two years prior to selling. In other words, you would pay taxes on gains from the sale of a non-owner-occupied investment property. During those two-years, you can't have been excluding the gains on sale from another home from your taxes.
Homes sales can be excluded from federal capital gains taxes and your Arkansas income tax, as Arkansas follows the federal guidelines on capital gains.
How Much Are Real Estate Transfer Taxes in Arkansas (and Who Pays Them)?
When your new home changes hands, the state, county, or municipality may levy a real estate transfer tax, sometimes called a stamp tax. A percentage of the purchase price of the home is used to calculate the tax, and whether the buyer or seller pays the tax varies by state.
In Arkansas, transfer tax rates have been set by the state. The tax is $3.30 for every $1,000 over $500 in value of the home. If a home sold for $200,000, the taxes would be roughly $600. In Arkansas, both parties often agree to split the transfer tax.
How to Calculate Property Taxes in Arkansas
The county determines property taxes in Arkansas, not the state. Additional taxes and fees may be charged by the city or town, fire or school district for special measures or initiatives. Statewide, the effective property tax is just 0.63%, one of the lowest in the country.
In Jefferson County, your property taxes on a $250,000 home would be $1,555, while in Baxter County you'd only pay $1,365. Property taxes obviously vary between counties, and you could pay more in taxes for the same priced house in a different area.
Homes values are reassessed in cycles of three to five years in Arkansas. During a reassessment cycle the county appraiser or their representative visits your home to review structures, for example if you've built a new garage, and take inventory other improvements such as adding a fence or pool. They use either the sales comparison, cost approach or income approach to assess your home's value.
Before making a home purchase, discuss property taxes in your target area with your agent as they will impact overall cost of homeownership.
Tax Breaks for Arkansas Home Buyers & Sellers
You might be able to take advantage of some tax breaks if you're buying or selling a home in Arkansas.
Tax Breaks and Credits for Buyers
If you're buying a home, look into some of the tax breaks and credits available which are meant to reduce the costs of home ownership.
First-time home buyers who obtain a mortgage through the Arkansas Development Finance Authority or ADFA can get a tax credit if they meet income requirements. The ADFA will issue a Mortgage Credit Certificate or MCC which allows you to deduct up to 50% of your mortgage interest per year, but is capped at $2,000. The purchase price of your home can't exceed $270,000 to qualify.
While the federal government no longer offers first-time home buyers tax credits, you can deduct the amount you're paying in mortgage interest. The principal limit for the mortgage was lowered in 2018 and now you can only deduct the interest paid on mortgages with a total principal of less than $750,000, or $375,000 for couples married but filing separately.
If your home is your principal residence, you can apply for a homestead tax credit of $350 on your taxes. Arkansa also offers specific credits to the elderly, disabled or veterans. Depending on what you qualify for you can have your property taxes frozen at the date of purchase, or there will be limits on how much the taxable assessed value can increase each year.
Tax Breaks and Write-Offs for Sellers
You won't be completely out of luck when it's tax season If you're selling a home, either.
Significant repairs and improvements made to your home prior to listing it on the market could be tax deductible. To qualify, these repairs must be related to the sale. Keep records of any repairs that were required after the home inspection, including signed purchase agreements, estimates, and receipts.
Repairs are defined as required maintenance to keep the home functioning, and they're immediately deductible. Improvements increase the property's value, and can't be deducted all at once but rather over a few years.
Any mortgage interest that you paid prior to selling your home will still be deductible, and your mortgage company should still send you a tax form.
A deduction that many home sellers forget relates back to when they bought their home. If you paid points, i.e., interest up front, when you bought or refinanced the house, those points are deductible over time. But if they haven't been fully deducted at the time of sale, you can take the remaining amount as a lump sum deduction in the year you sell your house.
Moving costs are now only deductible for military personnel, not just anyone moving for a new job, another change from the Tax Cuts and Jobs Act in 2018.
Taxes vary between states and counties, and if you're moving they could be quite different in your new location. Seek help from a certified tax professional or accountant to minimize your tax exposure and maximize your savings if you're buying or selling a home.
Now that you've learned how real estate taxes will impact your decision to buy or sell a home in Arkansas talk to a local real estate agent to see if now if the right time to enter the housing market. Clever Partner Agents are drawn from the top-rated selling or buying agents in your area, so reach out and get connected with one today.