Whether you are buying or selling a home in Connecticut, you can expect to pay your fair share of taxes. To achieve a real estate transaction without unexpected costs, it’s important to know your state’s specific tax implications. This is what you need to know about the region.
When buying or selling a home in Connecticut, you will likely consider property taxes into your budget or list price. Where you close the deal can make a big difference, as rates vary between different counties and even neighborhoods. You may be surprised about numerous other tax obligations involved in a real estate transaction.
The good news is — an agent who is familiar with the local area can guide you through the entire experience and inform you about what to expect. Don’t catch yourself off guard when it comes to local taxes. Understanding the ins and outs can influence your decision on where to buy and how to sell.
Before leaping into an unexpected web of fees and responsibilities, here’s what you need to know about making a deal in Connecticut.
Will You Have to Pay Taxes When you Sell Your Home in Connecticut?
In most cases, home sellers have the luxury of keeping their real estate profits without paying taxes at a federal level. Of course, there are a few exceptions, depending on the amount of revenue generated and living conditions. Here is how it breaks down in Connecticut.
A seller qualifies for tax-free gains by meeting these requirements:
- You have owned and used the property as your main residence for at least two of the last five years before a sale;
- Your profits are less than $250,000 if single or $500,000 when married and filing jointly; and
- You have not already excluded profits from the sale of another home in the last two years.
On a state level, Connecticut follows the same federal guidelines. If you fall into one of these categories, you are free to retain the entirety of your real estate profits.
How Much Are Real Estate Transfer Taxes in Connecticut (and Who Pays Them?)
Real estate transfer taxes are common expenses when there is a change in ownership of a property. The cost is typically a percentage of the sale price or appraised value of the real estate that is bought or sold.
The base state transfer tax is 0.75% for the first $800,000 of the sale price. Thereafter, a 1.25% rate applies to the portion of a residential dwelling exceeding $800,000 but less than $2.5 million. In the rare case that the home is valued at more than $2.5 million, it will be taxed at a 2.25% rate.
During a real estate transaction, a seller can also expect to pay a range of 0.25% to 0.50% of their home sale toward municipal taxes. It’s important to know that the lesser fee is a base price but can increase depending on the municipality where a property is located. There are 19 eligible areas throughout Connecticut considered "targeted investment communities" where taxes are heightened.
Since the real estate transfer fees are the seller’s responsibility in Connecticut, it’s important to know where you stand. Work with a Clever Partner Agent who is an expert in their local area and they will explain exactly what you should expect based on your location.
The full-service experience they offer will also save you money on commission fees. A flat fee realtor works for a set price, not a percentage of the sale.
How to Calculate Property Taxes in Connecticut
Budgeting for a new home is more involved than considering how much of a mortgage payment you can afford. Property tax in Connecticut can raise your annual expenses considerably, as it ranks the fourth highest of any state in the country.
To get an idea of the cost associated with a home you are considering, find your 2019 mill rate. Multiply the assessment of the property by the current rate and divide by 1,000. The assistance of a licensed real estate professional can provide you with up-to-date information to discover the most accurate expense.
While the state’s average tax as a percentage of home value is 2.07%, where you live in Connecticut can make a difference regarding what you will pay.
For instance, Hartford County is a popular place to call home. The average tax rate is significantly higher than the median at 2.22%. This means for a home with an assessed value of $250,000, you should expect to pay $5,550 annually. An area like Litchfield County has a lower rate at 1.89%, so a property with an assessment of $250,000 will be lower, at $4,725 per year.
Connecticut home buyers may be eligible for Clever Cash Back when working with a Clever Partner Agent.
Tax Breaks for Connecticut Home Buyers & Sellers
Since selling or buying a home in Connecticut can tie up a large portion of your money, you should know which tax breaks and credits you have access to.
Tax Breaks and Credits for Buyers
First, the state offers a "circuit breaker" property tax credit to any homeowner over the age of 65. An eligible married couple is entitled to a discount of up to $1,250 and $1,000 relief is available for single seniors.
Voluntary firefighters, fire police officers, and emergency medical technicians are also eligible for an annual discount of $1,000 toward property tax fees.
There are some cities and counties in Connecticut that offer first-time home buyers the Mortgage Credit Certificate federal tax credit. Ask your expert local agent if you qualify with the specifications of the program.
You should receive a document from your mortgage lender that displays the amount of interest you paid throughout the year and deduct it from your federal taxes. The Home Interest Mortgage Deduction also allows buyers to use a portion of points paid to reduce interest rates, in accordance with IRS Publication 936.
Tax Breaks and Write-Offs for Sellers
Home sellers aren’t exempt from taking advantage of Connecticut tax incentives.
You may deduct any reasonable cost you paid when selling your home. Some items include closing costs, repairs or improvements necessary to sell, marketing costs, and assessments.
The IRS also allows sellers to claim the cost of moving expenses as a deduction. You can deduct things like gas mileage to move, rental trucks, short-term storage, and even the expense of boxes.
The state of Connecticut offers its buyers and sellers numerous tax incentives to take advantage of. To get an idea of which areas in the states provide the most attractive credits, you should enlist the guidance of a professional accountant. Their knowledge of the local area will ensure you get the most savings out of a real estate transaction.