Selling a home in Cincinnati can be a great way to move forward in your life, whether you’re downsizing, relocating, or cashing in on your investment. However, many homeowners often overlook the potential tax implications of selling their property. The tax situation can vary based on a range of factors, including the length of ownership, the sale price, and the property’s use.
At PropertyPal, we understand that selling your home can be a significant financial decision, and understanding the tax consequences is crucial for planning. In this blog post, we’ll break down the taxes you may face when selling your Cincinnati home in 2025 and how to minimize your tax liability.
What Taxes Are Involved in Selling a Home in Cincinnati?
There are several types of taxes that could apply when selling your home in Cincinnati, including capital gains tax, real estate transfer tax, and potentially income tax if the home was used as an investment property. Let’s dive into each of these.
1. Capital Gains Tax
Capital gains tax is one of the most common taxes homeowners face when selling their home. If you sell your home for more than you paid for it, the profit—referred to as the capital gain—is subject to tax. However, in some cases, you can avoid paying capital gains tax on the sale of your home, thanks to the primary residence exclusion.
Primary Residence Exclusion
In Cincinnati, if the home you’re selling is your primary residence, you can take advantage of the IRS home sale exclusion. This exclusion allows you to exclude up to $250,000 in capital gains from the sale if you’re an individual or $500,000 if you’re married and filing jointly. To qualify for this exclusion, you must meet the following criteria:
- Ownership: You must have owned the home for at least 2 years out of the last 5 years before the sale.
- Use: The home must have been your primary residence for at least 2 years during that 5-year period.
- Frequency: You cannot have claimed the exclusion on another home sale in the past 2 years.
If your home qualifies for the exclusion, you won’t have to pay capital gains tax on the gain up to the exclusion limits. If your gain exceeds the exclusion limits, the excess will be subject to capital gains tax.
Capital Gains Tax Rates
The tax rate you’ll pay on any capital gains above the exclusion limit depends on your income and filing status. In general, the long-term capital gains tax rates in Ohio are:
- 0% for individuals in the 10% to 12% tax brackets
- 15% for individuals in the 22% to 35% tax brackets
- 20% for individuals in the 37% tax bracket
It’s important to note that the capital gain will only be calculated on the difference between the sale price and your original purchase price, minus any selling costs and improvements you’ve made to the property.
2. Real Estate Transfer Tax
In addition to federal taxes, the state of Ohio imposes a real estate transfer tax when selling a property. This tax is calculated as a percentage of the sale price, and both the buyer and seller can be responsible for paying it, depending on the terms of the agreement.
- Ohio Real Estate Transfer Tax: In Ohio, the real estate transfer tax is $0.10 per $100 of the sale price, which is equivalent to 0.1%. If you’re selling a home worth $200,000, for example, you’d owe $200 in real estate transfer tax.
Additionally, local municipalities in Cincinnati may impose their own real estate transfer tax. Always check with a local real estate agent or closing attorney to ensure you’re aware of any local taxes that may apply.
3. Income Tax on Rental Property Sales
If the property you’re selling was used as a rental property or investment property, different tax rules apply. In this case, the profit from the sale may be subject to income tax rather than just capital gains tax.
Depreciation Recapture
If you claimed depreciation on the property while renting it out, you’ll have to “recapture” that depreciation when you sell. Depreciation recapture is taxed as ordinary income, up to a maximum rate of 25%. This means that any depreciation you’ve taken on the property will be added back into the sale price and taxed accordingly.
Additionally, you may be subject to capital gains tax on any profit from the sale that exceeds the property’s depreciated value.
1031 Exchange
To defer paying taxes on the sale of an investment property, you may be able to use a 1031 exchange. A 1031 exchange allows you to sell your rental property and reinvest the proceeds into a like-kind property (such as another rental property) without paying capital gains tax. There are strict rules and timelines for completing a 1031 exchange, so it’s essential to work with a qualified intermediary and tax professional.
How to Minimize Taxes When Selling Your Home in Cincinnati
While taxes on the sale of your Cincinnati home are often inevitable, there are ways you can minimize your tax liability. Here are a few tips:
1. Take Advantage of the Primary Residence Exclusion
If your home is your primary residence, make sure you qualify for the home sale exclusion. This could allow you to exclude up to $500,000 in capital gains (if married) or $250,000 (if single). If you’re close to meeting the 2-year residency requirement, it may be worth waiting a few months before selling to maximize your tax benefits.
2. Keep Records of Home Improvements
When calculating your capital gain, you can subtract the cost of any improvements you’ve made to the home from the sale price. Be sure to keep detailed records of all home improvements, including receipts, contracts, and invoices. This can reduce the amount of gain subject to taxes.
3. Consider Timing the Sale
The timing of your sale may also impact your taxes. For instance, if you’re nearing the end of the 5-year window for the primary residence exclusion, it might make sense to delay selling until you meet the 2-year ownership and residency requirement.
4. Work with a Tax Professional
The tax rules surrounding home sales can be complex, especially if you’ve made significant profits or claimed depreciation. A tax professional or accountant can help you navigate the process and determine the best tax strategies based on your specific situation.
Conclusion
Selling your home in Cincinnati comes with tax responsibilities, but understanding the tax rules can help you make informed decisions and minimize your liability. By taking advantage of the primary residence exclusion, keeping track of home improvements, and considering the potential benefits of a 1031 exchange for rental properties, you can make the sale process smoother and more financially rewarding.
If you’re ready to sell your home quickly and want to avoid the hassle of repairs or listing with a realtor, PropertyPal is here to help. We buy homes as-is in Cincinnati and can make you a fair cash offer for your property, regardless of its condition.
Contact PropertyPal today to learn more about how we can help you sell your Cincinnati home and navigate the tax implications with ease!