You want to buy or sell a home. You know that any economic transaction of this magnitude also means that it will affect how much you pay the government in taxes. Here is a real estate tax guide for residents of Wisconsin.
Will You Have to Pay Taxes When You Sell Your Home in Wisconsin?
If you are in the process of selling your home, you are probably making plans for the money you will be receiving as a result of the sale.
Will that money be used as a down payment on a new home? Will you be paying off other debt with the cash?
Before you spend all the money in your mind, it is essential to understand the tax implications of selling a home. After all, you won’t be able to spend all your profits if you have to give some of it to the government.
The good news is that unless you make more than $250,000 on the sale of your home, you won’t have to pay taxes on the gains. If you are married and filing jointly, you won’t have to pay taxes on the sale of your property unless you make more than $500,000 on the deal.
To qualify for this tax exemption, you will have needed to own and to have lived in the home for at least two years. During those two years, you could not have received an exemption on your taxes on the sale of another home.
Is that good news to you? Here are other tax implications to consider.
How Much Are Real Estate Transfer Taxes in Wisconsin (and Who Pays Them)?
Even if you are not required to pay taxes on the profit you received from selling your house, you may have to pay real estate transfer taxes if you are purchasing a new home.
States, counties, and cities can charge real estate transfer taxes when a piece of real estate changes hands. Usually, the taxes are based on the percentage of the purchase price of the property in question.
In Wisconsin, the deed transfer tax is $3 per $1,000 (or 3%.) If you sell a $250,000 property in Wisconsin, the buyer will be required to pay $750 as a state transfer tax.
It is not clear on whether or not counties or municipalities also charge a real estate transfer tax. For more information regarding your individual sale, contact your Clever Partner Realtor.
How to Calculate Property Taxes in Wisconsin
If you own a home in Wisconsin, you have to pay property taxes.
Property taxes are collected from home owners each year to help fund schools, fire departments, libraries, and other local services.
The amount of property tax you are required to pay usually depends upon the value of your home. How is this value determined?
Usually, the local assessor will compare your property to other properties similar to yours that have recently sold in your area.
Your home’s value can also be determined on how much it would cost to reproduce your home if it was built today. The value of the land will be considered, as well as the age of the house. If your home is older, the assessor will factor in depreciation.
Once your home’s value has been determined, the local mill rate is multiplied by the home’s value.
For example, if your Wisconsin property is assessed for $250,000, and your local mill rate is 45, you will have to pay $11,250 per year in local taxes.
If you have a mortgage, your mortgage company collects your property tax money. The mortgage company then pays your local government the money you owe.
If you do not have a mortgage, you can send your property tax payment into your local tax authority on a monthly, semi-annual, or annual basis.
The amount your local government collects in property taxes makes a difference on your bottom line.
For example, if you live in Wisconsin, the tax rate is 1.94%. That means if your home is worth $169,300 (which is the average home value in Wisconsin), you will pay $3,286 per year. Your tax bill will be $274 a month.
If you live in an area of the country with a low property tax, such as Alabama, the tax on your $169,300 home would be $711.06 per year. That means your monthly tax amount would be $59.25.
When you are purchasing a home, make sure you understand how much money you will be spending each month on local taxes. You can’t understand how much of a mortgage you can genuinely afford until you know how much money you will pay each month on your tax bill.
Tax Breaks for Wisconsin Home Buyers & Sellers
With all this discussion on how much money you will spend on taxes when you buy, sell, or just own a home, you may feel relief in knowing that there are tax breaks and credits given to Wisconsin buyers.
First off, if you are a first-time home buyer, you could qualify for a tax credit. Talk with your buyer’s agent and mortgage provider to see if you are eligible for this tax credit.
You also may be able to deduct the amount you pay in interest on your mortgage each year. Your tax preparer or accountant should be able to tell you whether or not you qualify for this deduction. You can also find out if you qualify for this deduction if you use online tax preparation software.
Wisconsin residents may also qualify for reductions in the amount of property tax they are required to pay.
The Homestead tax credit is an income-based property tax credit program for homeowners.
There is also a property tax deferral loan program for elderly homeowners who cannot afford to pay their property taxes. The tax amount is not forgiven, but the elderly occupant can take out a loan for the amount due, and then pay for the taxes when the home is sold.
Finally, veterans may qualify for a property tax exemption on their property. The law requires that the veteran was a resident of Wisconsin during the time of entry into active service or was a resident of Wisconsin for five consecutive years after he or she entered into active service.
Tax Breaks and Write-Offs for Sellers
There are other tax breaks that homeowners should be aware of relating to owning a home.
You could qualify for a deduction if you spend money making repairs and improvements to a home before selling your property. Usually, the repairs need to be done within 90 days of your closing date.
You could also deduct the amount of mortgage interest you pay each year. This rule and the amounts seem to change as the administration changes. Make sure you understand the current situation regarding your mortgage interest.
Finally, if you are an active duty military member, you could deduct moving expenses.
You can also save money on real estate commission fees by working with a Clever Partner Agent in your area.
Although this article intends to explain your tax responsibilities and breaks for residents of Wisconsin, the amount you are required to pay can vary from region to region.
Before making any decisions on the buying or selling of property, reach out to a tax professional or an accountant to help you determine what your tax responsibility will be.