Whether you’re buying or selling a house in Ohio, it’s important to understand the ins and outs of the state’s property taxes. Here’s everything you need to know before making your next big move:
Will You Have to Pay Taxes When You Sell Your Home in Ohio?
If you’re looking to put your Ohio house on the market, you may be wondering if you will have to pay tax on the sale of your property. Good news for you: it’s likely that you won’t have to.
However, there are a few exceptions; if you have gains that are more than $250,000 or more than $500,000 for married couples, you will get stuck paying taxes. If you have lived in your house for less than two out of the last five years, you’ll probably have to pay taxes in this scenario as well.
A few factors to keep in mind are how long you have owned and lived in the home before you sell and how much profit you make from it. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
It’s also important to note that the tax-free amount doubles to $500,000 if you are married and file a joint return. The law lets you "exclude" this much otherwise taxable profit from your taxable income.
How Much Are Real Estate Transfer Taxes in Ohio (and Who Pays Them)?
A transfer tax is the city, county or state's tax on any change in ownership of real estate. Your transfer tax is equal to a percentage of the sale price or appraised value of the real estate that you buy or sell.
Be on the lookout for other terms though; in some states, the transfer tax is referred to as "deed tax," "mortgage registry tax," or "stamp tax." Some counties in the US levy what is known as an "optional" transfer tax. Despite the name, it's the county government that decides whether or not to charge optional transfer taxes.
Transfer taxes are separate from recording fees and mortgage recording taxes, which apply on top of transfer taxes. Not all states or counties charge both sets of taxes, but many high-cost areas like New York City levy both together. A recording fee is normally a small flat amount, while mortgage recording taxes are a percentage of the sale price, like transfer taxes. Taken together, all these fees can end up constituting a significant chunk of your mortgage closing costs.
Keep in mind that transfer taxes also differ from capital gains taxes, which may be levied if you've lived in your home for less than two years. Read our guide to see whether you're subject to a separate capital gains tax on your home sale.
Generally, Ohio law requires a transfer tax on the sale of real property. Ohio law also requires the reporting of sales of real property to the County Auditor. Real estate taxes are usually based on the valuation of the real property, which is based on the last sale price at which the real property is last reported as sold.
Statewide, Ohio has a mandatory tax of 1 mill ($1 per $1,000 of the value of the transferred property), which applies in every county. Assume that Seller A sells 60% of its ownership stake in Realty LLC to Buyer B, and that the property owned by Realty LLC is valued at $100,000. The mandatory 1-mill state tax will equal $60 (60% of $100,000 = $60,000 * 1 mill = $60). There is also a permissive county tax of up to 3 mills. All except Ross County levy the permissive county tax.
How to Calculate Property Taxes in Ohio
Property taxes are calculated based on an assessment of your property’s value. Local property taxes fund schools, fire departments, and libraries. They are often a major source of funding for your city or county. Some property tax bills will even show details on how much of your money goes to specific government and public expenses.
Your home's value is determined by your local tax assessor’s office. Property assessments may be done every year or once every five years, depending on state or local law. You should expect to receive your value assessment first, followed by your property tax bill a little later.
The assessment is based on the tax assessor's estimation of the market value of your property.
The assessor will compare your property to other similar properties that have sold in the immediate area recently. Then he will adjust for variables that may make your property more or less valuable than those that have sold, such as an updated updated kitchen or renovated bathroom.
The assessor also calculates how much it would cost to reproduce your home from the ground up. This includes materials and labor. He'll factor in depreciation if your property is older, and will then add the value of your land.
Your property's assessment is then multiplied by the local tax rate, also referred to as a millage rate or mill rate. One mill equals one-tenth of one cent or $1 for every $1,000 of a property's value. Different governments can charge varying mill rates. It’s extremely rare to see anyone's property tax based on just one mill.
Depending on where you live, property taxes could be merely a small inconvenience or a major burden. The average American household spends $2,279 on property taxes for their homes each year, according to the U.S. Census Bureau.
The state of Ohio has an average tax rate of $3,883 and pays 1.553% in annual property taxes.
Property taxes can differ significantly depending on your region. East Palestine, OH (located in Columbiana County), for example, pays an average tax rate of 1.189% and $2,973 in annual property taxes — which differs from the state average.
That’s why it is so important to discuss typical property taxes in your area with your local agent. In doing so, you will be able to assess the overall cost of homeownership in your specific location.
Tax Breaks for Ohio Home Buyers & Sellers
Every year, your home is subject to local property taxes – and you obviously don’t want to find out one day that you have been overpaying. Fortunately, there are a few ways you can reduce your property tax burden.
Tax Breaks and Credits for Buyers
Ohio allows for reduced property tax fees if you meet certain requirements. Here’s a summary of the chief programs in Ohio that home buyers within the state may be able to take advantage of.
- Senior Homestead Exemption: If you’re 65 years old or older, you may qualify for an exemption of the first $25,000 of your home’s taxable value. In order to be eligible, your annual income must be less than $30,000 in the state of Ohio.
- Disabled Homestead Exemption. If either you or your spouse are totally and permanently disabled, you may qualify for the same exemption as seniors do. The same income limit applies here as well.
- Veterans exemption. If you’re a veteran who is totally and permanently disabled, you’re eligible for an even larger exemption: the first $50,000 of your home’s taxable value with no income limit. If you are the surviving spouse of a veteran who was receiving this exemption when he or she died, and were living in the home at that time, you also qualify for this exemption. There’s no income limit for this circumstance either.
Tax Breaks and Write-Offs for Sellers
There are a few different tax deductions for you to take advantage of when selling your home.
More deductions leads to more profits — setting you up to buy an even better home with the proceeds. A local real estate agent can walk you through all your options.
Here are some tax deductions you may qualify for as a homeseller in Ohio:
- The Cost of Repairs and Improvements Related to the Sale
It’s inevitable; you will likely have to make some repairs to yield top dollar from the sale. Of course, the thought of spending more money than you have to on home repairs does not sound ideal. Don’t let it get you down; as long as you can relate the repairs to the sale, you should be able to deduct them.
- Mortgage Interest
Mortgage interest is a possible tax deduction for the time period that you owned the home. Make sure you have records of the date of sale that you can access in the event you are audited if you are looking to deduct your mortgage interest for the year you sell.
It’s also important to note that tax deduction laws changed in 2018; sellers can now only deduct the interest on up to only $750,000 of mortgage debt.
- Costs Related to Selling Your Home
There’s simply no beating around the bush; selling your house will cost you money. The IRS is waiting at the ready to accept all your costs for the sale of your home as deductions, so be sure to keep a record of all of your expenses.
Tax exposure and/or breaks can vary greatly from region to region. Sellers and buyers alike that are involved in a real estate transaction should seek guidance from a certified tax professional or account accountant. This will help to minimize exposure and maximize your savings.