It can be difficult to understand real estate taxes, but they’re something every buyer, seller, and property owner needs to know. Wherever you are in the homeownership process, here’s your guide to Virginia real estate taxes.
If you’re buying, selling, or already own property, you need to understand your state’s real estate tax system.
Property taxes can vary widely based on what state, county, and city you live in. As soon as you start thinking about buying or selling real estate, you should also start thinking about your local property taxes.
Learning about the ins and outs of Virginia real estate taxes will help you be sure that you’re paying the right amount.
Will You Have to Pay Taxes When You Sell Your Home in Virginia?
Whether you have to pay taxes when selling property in Virginia depends on a few things. If you’re selling investment property or haven’t owned your property for at least two years, you can expect to pay taxes on your gains. But if you’re selling your home, you may be exempt from federal capital gains taxes — if you meet the right criteria. Luckily, most home sellers do.
Federal Taxes
If you’re selling your primary residence, you’ll probably be exempt from paying taxes on the profits from selling your home. The amount that is considered a profit or gain is the amount you paid for the house plus the amount of any improvements and renovations, minus the amount you’re selling the property for.
If you meet these qualifications, you will not have to pay federal taxes on your gains:
- You owned the house for at least two years;
- You resided in the house as your main residence for at least two years;
- In the two-year period after you bought your home, you didn’t exclude the profits from the sale of another home; and
- You’re profiting less than $250,000 (if single) or $500,000 (if married and filing jointly) from the sale.
If you don’t meet all of these qualifications, you’ll likely have to pay capital gains taxes on your property sale. However, you may qualify for an "unforeseen circumstances" exemption if you recently lost your job, went through a divorce, or had a family medical emergency.
There are two types of capital gains tax, short-term and long-term. Which tax applies to you and what your rate is will depend on how long you’ve owned the property.
If you sell property within a year of buying, you’ll be charged for a short-term capital gain. This tax rate is the same as your income tax rate at the time of the sale.
If you sell property more than two years after buying, you’ll be charged for a long-term capital gain. The tax rate for long-term capital gains is significantly lower than the rate for short-term gains and will depend on the specifics of your sale.
Learn More: How to Avoid Capital Gains Tax When Selling a House
State Taxes
Virginia follows the federal rule on capital gains taxes, so if you’re exempt from paying capital gains taxes to the IRS, you’ll also be exempt from paying them to the Commonwealth.
Real estate taxes can be complicated when you’re selling property. Be sure to talk to a local real estate agent about your potential tax liability.
Learn More: Real Estate Taxes 101: A Guide to Understanding How Real Estate Taxes Work
How Much Are Real Estate Transfer Taxes in Virginia (and Who Pays Them)?
When real estate changes hands, oftentimes state and local governments charge a transfer tax. The transfer tax is a set percentage of either the sale price or the appraised value of the real estate. Real estate transfer taxes can be charged at the state, city, and/or county levels, depending on where you live.
Transfer Tax in Virginia
Virginia’s transfer tax is called the Virginia Grantor tax. The Grantor tax requires the seller to pay 1% of the real estate’s total purchase price.
How to Calculate Property Taxes in Virginia
Every real estate buyer should understand their potential tax liability before they get too far along in the process. After your mortgage, your property tax bill is likely to be one of your biggest regular expenses.
Property tax is a major source of revenue for state and local governments. State and local governments use property taxes to pay for things like public schools, parks, fire departments, and infrastructure. The rate at which property taxes are levied can vary greatly based on what state you live in and where you are located within the state.
Virginia property taxes are relatively low. The average U.S. tax rate is 1.2% of a home’s assessed value, compared to the average Virginia tax rate of 0.8%. The owner of a home worth the Virginia median of $258,400 should expect to pay around $2,067 in property taxes annually.
That rate will also vary based on where in Virginia you live, due to fluctuations in county and city rates. The owner of a $258,400 home can expect to pay $2,972 (1.150%) in Alexandria, versus $1,266 (0.49%) in Bath County.
Tax Breaks for Virginia Home Buyers & Sellers
There are state and federal programs that offer tax breaks to real estate owners, buyers, and sellers. The program(s) you qualify for will depend on your personal situation.
Tax Breaks and Credits for Buyers
There are a number of programs that provide tax breaks and credits for buyers, especially first-time home buyers.
The Virginia Department of Veterans Services offers a real estate tax exemption to disabled veterans. The Virginia Constitution exempts eligible disabled veterans and their surviving spouses from property taxes on their primary residence. Virginia also offers tax exemptions for seniors, people with disabilities, and surviving spouses of military personnel killed in action.
In addition, Virginia offers a solar energy equipment tax exemption, allowing a tax deduction for homeowners who install solar equipment for the collection and use of solar energy for hearing, cooling, and other energy sources.
Tax Breaks and Write-Offs for Sellers
Don’t worry, there are tax breaks for sellers, too. One of the most common deductions for home sellers is for repairs and improvements related to selling their homes. This deduction allows sellers to deduct the costs of most repairs and improvements made within 90 days of their sale date.
Sellers can also deduct their mortgage interest for the time they owned the home, discount points from their mortgage, property taxes up to $10,000, and costs related to selling their home.
Work with a Professional
Your tax liability can vary greatly from place to place, even within the Commonwealth. Real estate buyers, sellers, and owners alike should be sure to seek guidance from a certified tax professional (accountant and/or attorney) in order to minimize your exposure and maximize your savings. You can also seek help from an expert real estate agent for tax questions or a referral to a tax expert.
