Real estate property taxes can impact your monthly mortgage payment, or any gains on sale, but many home buyers and sellers forget to consider them when deciding whether to buy or sell. Everything you need to know about real estate taxes in North Dakota.
Local real estate taxes are a less glamorous but still an important part of the housing market. Property taxes could make one home more expensive than another if you’re buying. Income taxes could impact a seller’s profit.
When trying to maximize benefits and reduce taxes, talk to an accountant or finance professional. Your local real estate agent can also answer many questions, particularly about upcoming tax levies or ballot issues in your area, but here is an overview.
Will You Have to Pay Taxes When You Sell Your Home in North Dakota?
Many homesellers are worried about federal taxes when they sell a home. They think that the profit on their sale could be considered a capital gain. Capital gains taxes are charged to the amount of money realized between what you paid for an asset and what it sold for, i.e. your profit. But unless you made gains above $250,000 for a single person or $500,000 for married couples, you can relax. Your gain on sale will be exempt from capital gains taxes.
There are a few other qualifications you must meet to qualify for an exemption. The home you sell must have been your primary residence for at least two years when you sell it. And you must have been the owner, so a home you were living in but your parents owned would not be exempt. During those two years, you can’t have been taking an exclusion on the gains from selling another home.
North Dakota does have a state income tax and capital gains are included. However, gains on sales of property are subject to the same federal exclusions.
How Much Are Real Estate Transfer Taxes in North Dakota (and Who Pays Them)?
A real estate transfer tax, or stamp tax, is sometimes charged by states, municipalities, or countries when a house is sold. The taxing authority calculates it off the home’s purchase price. The party who pays the tax, buyer or seller, varies by the state.
The good news is that there are no real estate transfer taxes charged in North Dakota, so this isn’t something you have to worry about.
How to Calculate Property Taxes in North Dakota
Thanks to the oil boom, North Dakota has some of the lowest taxes in the country. Depending on your city or town, special levies for the schools or fire department can be added on top of them, which is partially why taxes vary between counties. Statewide, the effective property tax is 1.05%, which puts North Dakota 24th in the country.
In Richland County, property taxes on a $250,000 home would be $3,720, but in Cass County you’d pay $4,073. Because of these county variations you could pay more in taxes for the same house in a different area. Keep this in mind when house hunting.
Homes in North Dakota are re-appraised annually through a mass appraisal using local sales. Assessed value is 50% of market value, and then property taxes are a percent of that value.
Property taxes contribute to the overall cost of your new home. Before deciding on a target neighborhood, discuss property taxes with your agent.
Tax Breaks for North Dakota Home Buyers & Sellers
If you plan ahead you can take advantage of some tax breaks when you buy or sell a home in North Dakota.
Tax Breaks and Credits for Buyers
The state and federal government offer tax breaks to home buyers.
While the North Dakota Housing Finance Authority or NDHFA offer low-interest loans and down payment assistance to low-income and first-time home buyers, they don’t offer mortgage credit certificates or direct tax credits.
North Dakota also has something called a homestead tax credit. If you meet the program requirements you can submit a form to have your property taxes lowered. To qualify, you must make under $42,000 a year, be over age 65, or be permanently and totally disabled.
Mortgage interest remains deductible on your federal tax return, though there is no longer a first-time home buyer credit. New principal limits set in 2018 mean that homeowners 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.
Tax Breaks and Write-Offs for Sellers
If you’re selling a home, it’s important to learn about your tax breaks and write-offs before you begin the process. Many of them will require documentation and receipts that you will need to keep during the home sale process.
If you have to make major repairs in order to sell your house, keep records. They could be a tax deduction if they’re related to the sale. If the buyer requests any repairs after the home inspection and makes the sale contingent upon them, get those requests in writing so you have proof for the IRS.
Any repairs necessary to keep the home functioning are immediately deductible. Work done to increase the property’s value, such as a kitchen remodel, is an improvement per the tax code. Deductions for improvements have to be spread out over a few years after selling the home.
Your previous mortgage lender will still send you the mortgage interest form for your taxes at the end of the year. Anything you paid during the year while you still owned the home is still deductible.
If you paid any interest up front when you purchased the home that you’re now selling, you should have been deducting those points on your taxes. If you’re selling within a short period after buying, you might not have yet taken the full deduction. Now that you’ve sold the home, you can deduct the remaining interest in one lump sum on this year’s taxes.
The Tax Cuts and Jobs Act changed the rules about deducting moving costs. Moving costs are only deductible now for military personnel, and no longer cover job relocations.
While it’s highly unlikely that you will make a decision about home ownership solely on the basis of property taxes, they should be something you take into account. A tax professional or accountant can offer advice on how to minimize your tax exposure and maximize your savings if you’re buying or selling a home.
If you have decided to learn more about buying or selling a home in North Dakota, talk to a local real estate agent. Clever Partner Agents are drawn from nationally recognized brands. Our Network consists of top-rated selling or buying agents in your area. They’ll be able to answer any questions you may have about real estate taxes in North Dakota.