While not as glamorous as selecting counter tops or remodeling a bathroom, it's important for home buyers and sellers to understand the ins and outs of property taxes.
Property taxes are often included in your monthly mortgage payment. Higher taxes equals a higher payment for a home buyer. If you sell your home, you should talk to an accountant about any taxes on gains. While your local real estate agent can provide some insight, here is an overview of property taxes in North Carolina.
Will You Have to Pay Taxes When You Sell Your Home in North Carolina?
If you make a profit when you sell your home, you might be worried about taxes. Don't stress about it, because unless you made gains above $250,000 for a single person or $500,000 for family you'll be just fine.
You will not have to pay federal taxes on your gains if you meet some basic requirements. You must have owned and lived in the home for at least two years prior to selling. This means that you cannot exclude gains from the sale of a non-owner-occupied investment property. And during those two-years, you can't have been excluding the gains on sale from another home.
Homes sales can be excluded from federal capital gains taxes, but in North Carolina capital gains are taxed at the state income tax rate of 5.49% if the gain was above the same limits as the federal government uses.
How Much Are Real Estate Transfer Taxes in North Carolina (and Who Pays Them)?
Real estate transfer taxes are levied by states, counties, or municipalities when your new home changes hands. Sometimes these taxes are called stamp taxes. These taxes are calculated by taking a percentage of the purchase price of the home. Who pays these taxes varies by state.
In North Carolina, transfer taxes depend on the county. In most places, the tax is $1 for every $500 in value of the home. If a home sold for $200,000, the taxes would be $500. In North Carolina, the transfer tax is typically paid by the seller. Seven countries in Colorado can levy additional transfer taxes, up to 1% of the property's value. They are; Perquimans, Camden, Chowan, Currituck, Dare, Pasquotank and Washington counties.
How to Calculate Property Taxes in North Carolina
Property taxes in North Carolina are determined by the county, not the state. Additional taxes and fees may be charged by the city, fire or school district. Tax rates are shown as a dollar amount per $100 of assessed value. Rates in North Carolina vary between just 28 cents to over $1.00 per assessed value.
What this means, in practical terms, is that if bought a house for $200,000 in one county that charged 28 cents per $100 your property taxes would only be $560 a year. But if you bought that same home in a county with a property tax rate of $1.00 per $100, they'd be $2,000.
In Wake County, your property taxes on a $250,000 home would be $2,153, in Davie County you'd only pay $1,795. Property taxes obviously vary from region to region, and your tax burden could be much more for the same priced house in a different area.
Homes values are reassessed at least every eight years in North Carolina. The county assessor's office must reassess each home at fair market value on the first day of a reassessment year. They take an inventory of a home's characteristics to estimate a fair market value and then notify the owner of changes. Owners can appeal reassessments.
It's a good idea to discuss typical property taxes with your agent within your target market when assessing the overall cost of homeownership.
Tax Breaks for North Carolina Home Buyers & Sellers
If you're buying or selling a home in North Carolina, you might be able to take advantage of some tax breaks.
Tax Breaks and Credits for Buyers
If you're buying a home, many tax breaks and credits available to you are meant to reduce the costs associated with home ownership.
A first-time home buyer tax credit is available in North Carolina, though no longer in place federally. If you haven't owned a home in the past three years, when you buy a house you can deduct $2,000 with a Mortgage Credit Certificate or MCC. You apply for an MCC when you buy the home.
You can take a deduction for the amount you're paying in mortgage interest on your federal taxes, though the principal limit was lowered in 2018. Now you can only deduct the interest paid on mortgages with a total principal of less than $750,000, or $375,000 if you're married but filing separately.
Property taxes might also be deductible if you file itemized deductions in North Carolina. You can deduct them from your adjusted gross income. North Carolina also has some specific deductions available to the elderly, disabled or veterans. You can have up to 50% of your home's appraised value excluded from property taxes if you qualify.
Tax Breaks and Write-Offs for Sellers
If you're selling a home, you won't be completely out of luck when it's tax time. There are tax breaks and write-offs available to you, too.
If you make any significant repairs and improvements to your home prior to listing it on the market, they could be tax deductible. They key is that these repairs must be related to the sale. Keep records of any buyer requests for repairs after the home inspection, or any lists that your agent makes for you, and save all estimates and receipts.
Repairs fall into the bucket of required maintenance to keep the home functioning, and you can deduct them immediately. Improvements increase the property's value, and can only be deducted over a number of years.
Mortgage interest will still be deductible for the period of time during the year in which you owned the home. Keep a record of the sale's date, but your mortgage company should send you the proper form.
Interest points are an often-forgotten deduction for home sellers. If you paid points when you bought or refinanced the house and have only owned it for a short time, you can deduct those points over time. But if you haven't fully deducted them at the time of sale, you can take the remaining balance as a lump sum deduction.
Moving costs are no longer deductible if you move for a new job, another change from the Tax Cuts and Jobs Act in 2018. Now, they're only deductible for active duty military personnel.
Tax exposure and/or breaks can vary greatly from region to region. If you're involved in a real estate transaction, seek help from a certified tax professional or accountant in order to minimize your tax exposure and maximize your savings.
Once you've taken into account how real estate taxes will impact your decision to buy or sell a home in North Carolina, talk to a local real estate agent about local market conditions and if now if the right time to enter the housing market. Agents in Clever's Partner Network come from the top-rated selling or buying agents in your area, so reach out to be connected with one today.