Have a Tax Question? Ask a Tax Expert
Your tax liability will be determined based on your capital gain from selling the house. Regardless of what your mortgage balance is, the tax that you owe will be computed by subtracting the net sales price (sales price less brokerage commission etc.) from your basis in the house. Your basis in the house is generally the amount you initially paid for the house, plus any capital improvements that you made in the house that increased the value of the house.
Subtract the basis from the sales price and that is the amount that you will have to pay taxes on.
Hope this helps. I wish you all the best in the sale of the house. Good luck to you.
Another expert here.
1. There is not a special tax on vacation property; but there are some special rules that require withholding of estimated tax payment from nonresidents at the time of sale in New Jersey (which is quite confusing for many).
See, for example, the article N.J.'s exit tax: So baffling, even officials can't explain it
"Here's how the exit tax works: As soon as a non-resident sells a property, New Jersey withholds either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher."
"When such a seller eventually files his New Jersey tax return, he is refunded the difference between what is owed and what was withheld."
For more information see the FAQ from the NJ tax department at http://www.state.nj.us/treasury/taxation/gitrepfaqs.shtml
"Q: How do non-resident sellers/grantors calculate the estimated Gross Income Tax payment on the sale/transfer of real property in New Jersey?A: In accordance with N.J.S.A. 54A:8-9(a), the gain on the sale/transfer is multiplied by the highest rate of tax (8.97% effective 8-1-2004) for the taxable year provided in N.JS.A. 54A:2-1, but the estimated tax payment shall not be less than 2% of the consideration for the sale or transfer stated in the deed affecting the conveyance."
Estimated tax payment will be collected at the time of sale from a nonresident and used in computing the balance due or refund when the New Jersey tax return is later filed. 2. The new Medicare tax that begins in 2013 is a 3.8 percent tax on the taxable profit from the sale of a home and from all taxable investment income (interest, dividends, annuities, royalties,...) when modified adjusted gross income exceeds $200,000 filing single or $250,000 married filing jointly.
The rate is 3.8% in addition to any other capital gain tax; but whether or not it will be applied to this sale will depend on your modified adjusted income when filing for 2013.
Of course, there is a distinct possibility that law will change before 2013, as well.
For more information see http://health.burgess.house.gov/uploadedfiles/one_page_on_unearned_medicare_tax.pdf
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