For homebuyers and sellers, understanding real estate taxes and what’s required of you is critical. The last thing you want to do is enter a real estate transaction and be surprised by taxes you didn’t know about or that the property taxes will be more than you expected.
One easy way to avoid this situation is to take the time to learn about property taxes in your state so you can walk into any real estate transaction prepared.
For Missouri residents, the following information should help you get a handle on the types of taxes you’ll be expected to pay on both the buying and the selling side. This information can help you prepare for what’s to come so you can appropriately budget and plan for what’s ahead.
You’ll learn whether or not you’ll have to pay to sell your home, how much real estate transfer taxes are in Missouri and who’s expected to pay them, how to calculate your taxes, and tax breaks you might be eligible for.
Will You Have to Pay Taxes When You Sell Your Home in Missouri?
Selling a home and moving to a new one is a huge step for most people. But if you’re wondering whether or not the profit you make from the sale will be taxed, you might be surprised by the answer.
By and large, the profit you make from selling your home is tax-free. However, there may be situations in which you do owe taxes. Typically, it comes down to how long you’ve owned your home and how much profit you made from selling it.
For instance, if you’ve lived in your home for two to five years before selling it, you can make up to $250,000 in tax-free profit. If you’re married and you file a return jointly, that number doubles, so you can make up to $500,000 of profit from the sale before you have to worry about paying taxes.
This exclusion applies every time you sell a property that you’ve lived in for two to five years. The only time you won’t be able to benefit from this exclusion is if you have previously qualified for it and used it in the two years leading up to the sale. However, that’s a given since you have to live in your home for a minimum of two years before the sale in order to get the tax break in the first place.
In Missouri, this federal exclusion law applies, as well. The only additional caveat is that the home you’re selling must be your primary residence.
How Much Are Real Estate Transfer Taxes in Missouri (and Who Pays Them)?
Generally speaking, a transfer tax is a tax imposed by the city, state, or federal government on any transfer or property. Any time ownership changes, transfer taxes are in play. Usually, the cost of the real estate transfer tax is equal to some pre-established percentage of the sale price or appraisal price of the home.
Fortunately for Missouri residents, no transfer tax applies in the state. However, the transaction still might be subject to local taxes or tariffs. To make sure you’ve adequately factored in all of the costs that will be associated with the sale or purchase of your home, be sure to work with your real estate agent. They can guide you through the process and ensure you don’t miss anything.
How to Calculate Property Taxes in Missouri
Property taxes are calculated based on the value of your home. These taxes go to fund several county and state programs such as the fire department and the local library. While property taxes can seem complex, calculating them is fairly straightforward.
After you have your property assessed, the assessment rate is multiplied by the local tax rate. This rate is often called a mill rate. A mill equals a tenth of a cent, or $1 for every $1,000 of property value.
Let’s say your home was assessed at $300,000 and your local tax rate is 43. You’d multiply $300,000 by 4.3% to arrive at your annual tax bill. In this case, it would be $12,900.
The effective real estate tax rate in Missouri is 0.99% with a state median home value of $145,400. On a home costing $194,000, the annual property taxes you’d end up paying would be $1,910.
It’s important to be aware, however, that tax rates can and do change from region to region, even within the same state. For example, the average tax rate in Springfield, Missouri is 0.871%. In Columbia, the rate is 0.960%, and in Kansas City, the rate is 1.387%.
In terms of dollars paid annually on a $250,000 home, Springfield residents pay $2,178, Columbia residents pay $2,400, and Kansas City residents shell out $3,468 per year.
If you’re considering buying a home in Missouri, you should consult with a local, experienced real estate agent in your target market so they can help guide you through the process and help you assess the overall cost of homeownership.
Tax Breaks for Missouri Home Buyers & Sellers
There are a few opportunities for tax breaks for Missouri homebuyers and sellers. Learning about the tax breaks and write-offs that you qualify for can help you reduce the overall cost of buying or selling your home.
Tax Breaks and Credits for Buyers
One state-level tax break is through the Missouri Housing Development Commission, which offers Missouri first-time homebuyers the ability to reduce the amount of income tax they owe each year.
Missouri residents who are considered senior citizens or who are disabled can also qualify for the Missouri Property Tax Credit Claim. If you paid real estate taxes or rent, you can get a tax credit of up to $750 for your rent or $1,100 if you own your home. Certain senior citizens and all disabled individuals are eligible for this credit.
When it comes to federal income taxes, you can also write off the interest you pay on your mortgage at tax time. This can often add up to substantial savings for homeowners.
And speaking of deductions, those property taxes you’ll have to pay are also tax-deductible.
Tax Breaks and Write-Offs for Sellers
Sellers don’t miss out on the deductions and write-offs, though. As mentioned earlier, you can keep a hefty amount of your sale profit tax-free so long as you owned your home for two to five years before you sold it.
What’s more, you can also write off some pre-sale repairs and improvements, such as fixing the roof or installing insulation. Moving costs and mortgage interest are also typically tax deductible expenses.
Be sure to keep track of everything you spent getting your home ready for sale, selling it, and moving. When it comes time to pay taxes, you’ll be able to enjoy multiple deductions.
Tax exposure, and tax breaks, can vary greatly from region to region. When selling your home, it’s important to contact an experienced, local real estate agent. Only an agent with local experience can help guide you through the process, and many will even work with you on a flat fee basis to help further minimize your costs.
Homebuyers should also consult with an agent so you can have an advocate at your side through each critical stage of the process, including gaining information about tax exposures and breaks. You can also find out about home buyer rebates that may be available in your state.
You’ll also want to consult with a certified tax professional or accountant in order to minimize your exposure and maximize your savings.