Buying or selling a home can be an expensive process. However, you can ease some of the financial pressure by knowing all the ins and outs of how property taxes work and then use it to your advantage with tax breaks and other tax deductions.
Read on to get a thorough understanding of how property taxes work in Oregon and how you can come out on top whether you decide to sell your home or buy a new one.
Will You Have to Pay Taxes When You Sell Your Home in Oregon?
When selling your home, you know there’s going to be extra costs. And whether it’s for unexpected repairs or closing costs, you’ll want to know exactly what additional fees await you when starting the home selling process — especially when it comes to taxes.
Fortunately, it’s more than likely that you will avoid paying any taxes when selling your home.
If you are single, you won’t have to pay any taxes unless you have gains that are more than $250,000. For married couples, you can exclude gains up to $500,000.
However, these tax exclusions apply only if you meet all of the specific requirements: the home must be your primary residence for at least the past two years and you have to have owned the home for the past two years.
You’ll be subject to taxes, unfortunately, if you don’t meet the above requirements. For instance, if you’ve only owned the home for under a year, any gains over the excludable amount will be taxed the same as your income rate.
Additionally, if your gains are above the single’s $250,000 or a married couple’s $500,000, your gain will be taxed at the capital gains tax rate.
How Much Are Real Estate Transfer Taxes in Oregon (and Who Pays Them)?
Also known as “deed tax,” “mortgage registry tax,” or “stamp tax”, real estate transfer taxes occur whenever you buy or sell a house—whenever a property exchanges hands.
Real estate transfer taxes are when your city, state, and/or county charges you a percentage of the sales price of the property you buy or sell.
For Oregon, the state is one of a handful in the nation that does not require a real estate transfer tax.
Back in November of 2012, the state of Oregon passed a piece of legislation called the Oregon Real Estate Transfer Tax Amendment, Measure 79, also known as Initiative 5. This amendment banned real estate transfer taxes throughout the state.
However, even though Initiative 5 was approved, Washington County is the only area in Oregon that still requires transfer tax. In Washington County, the transfer tax is $1 per every $1,000 of the purchase price.
Typically in Washington County, the transfer tax will be settled during closing and both the buyer and seller will contribute to paying the transfer tax.
But because of Oregon’s one odd outlier in the state, it’s always a good idea to consult with your realtor to make absolutely sure that you’re not subject to any taxes or tariffs.
How to Calculate Property Taxes in Oregon
Property taxes are critical for the quality and continued growth of Oregon’s cities, counties, and state overall.
Property taxes provide a large portion of the city’s and state’s funding going towards repairing roads, funding schools and libraries, parks and transportation as well as supporting local fire departments.
So how does Oregon decide how much to take in taxes?
With property tax, the amount is calculated by using the value of your property.
Deciding on your property’s value can be determined by comparing your home to other homes that have sold in the area. The property assessor will account for any special additions or other improvements that makes your home stand out and add value.
Another way to determine your property’s value is by calculating how much it would cost to reproduce your home from scratch including parts and labor.
Once your home’s value has been determined, it will be multiplied by the local tax rate called a mill rate. One mill represents one-tenth of one cent, or in other words, $1 for every $1,000 of a property's value. And more often than not, you will be taxed on more than one mill.
However, as each community in Oregon is different, property taxes can greatly differ from one region to another.
For instance, in Salem, Oregon, the average property tax rate is 1.218%. So for a home valued at $250,000 in Salem, the property tax adds up to $3,045 a year.
For comparison, in Portland, Oregon, the average property tax rate is lower at 1.125%. For the same home valued at $250,000, Portlandiers will only pay $2,813 per year.
Especially when you may be on a tighter budget when in the process of buying a home, it’s smart to discuss with your real estate agent the typical property taxes in your target market so you have a better idea of the potential future costs of owning a home.
Tax Breaks for Oregon Home Buyers & Sellers
Taxes can take a big chunk out of your annual income so you’ll want all the help you can get. Luckily, there are a few tax breaks that come from buying and selling a home.
Tax Breaks and Credits for Buyers
With the recent overhaul of the nation’s tax code, many previously existing tax breaks are no longer around. However, one popular tax break, the mortgage interest deductible, does still exist though in a modified form.
Note: if your mortgage loan was taken out before 2017, the old rules still apply.
Currently, you can benefit from the mortgage interest tax break, however, the limit on the total deduction allowed has been reduced to the interest on up to $750,000 of mortgage debt which is reduced from the previous cap of one million.
Another tax break you can take advantage of are property tax deductions.
If you meet certain requirements, such as you paid the tax when you closed on your home and you didn’t use taxes to increase the value of your home, you may be eligible for a $10,000 deduction on state and property taxes.
Tax Breaks and Write-Offs for Sellers
When it comes to selling your home the more tax breaks and deductions you can take will result in more profit from your home.
One deduction you can make is through repairs and improvements made to your home.
As long as you can prove that the repairs were related and necessary in order to sell your home, you’ll be able to deduct the costs. Be aware, however, that any repairs must be made within 90 days of the closing date.
Similar to buyers, sellers can also deduct mortgage interest. Again the cap on deductible interest is $750,000 of mortgage debt. If you are looking to deduct mortgage interest, make sure you keep extremely detailed financial records for the year you plan to sell.
Tax breaks can get complicated quickly and can look vastly different from one region to the next.
When trying to figure out tax breaks and the best way to maximize your savings when you either sell your home or buy a home, it’s ideal to work with a certified tax professional or accountant to help guide you through the entire process.