How much tax do you pay when selling a house in PA?

When selling a house in Pennsylvania, you typically encounter two primary types of taxes: the Realty Transfer Tax and Capital Gains Tax. Understanding these taxes is crucial for estimating your net proceeds from the sale.

Understanding Taxes When Selling Your House in Pennsylvania

Here's a breakdown of the taxes you can expect:

1. Pennsylvania Realty Transfer Tax

The Pennsylvania Realty Transfer Tax is imposed on the value of real estate when it is transferred. This tax is applied to the gross sale price of your property.

• State Rate: The state portion of the transfer tax is 1% of the sale price.
• Local Rate: Most Pennsylvania municipalities and school districts also impose their own transfer tax, which is typically an additional 1%. However, some local rates can be higher, particularly in certain cities like Philadelphia (which has a combined 4.278% rate as of 2024, split between buyer and seller in varying ways, but often a higher effective rate for the transaction overall).
• Who Pays: The transfer tax is often split between the buyer and the seller, but this is negotiable and can vary based on local customs or the purchase agreement.

Example: If you sell your house for $300,000, and the combined state and local transfer tax is 2%, the total transfer tax due would be $6,000 ($300,000 x 0.02). How this $6,000 is divided between buyer and seller depends on your agreement.

For the most accurate local rates, it's advisable to check with your specific county or municipal tax authority or consult with a local real estate professional. You can find more information on the Pennsylvania Department of Revenue website concerning Realty Transfer Tax.

2. Capital Gains Tax

Capital gains tax applies to the profit you make from selling an asset, such as a house. This means the tax is levied on the difference between your sale price and your adjusted cost basis (what you paid for the house plus certain improvements, minus depreciation if applicable).

There are two levels of capital gains tax you might pay: Federal and Pennsylvania state.

Federal Capital Gains Tax

The federal capital gains tax rate depends on your taxable income and how long you owned the property. For most home sales, we consider long-term capital gains, which apply if you owned the house for more than one year.

• 0% Rate: For individuals with lower taxable incomes.
• 15% Rate: For most middle-income taxpayers.
• 20% Rate: For high-income taxpayers.

These rates are based on your tax bracket for the year you sell the property.

Primary Residence Exclusion (Section 121):
A significant tax benefit for homeowners is the exclusion of gain from the sale of a main home. Under Section 121 of the IRS tax code, you may be able to exclude up to:

• $250,000 of gain if you are a single filer.
• $500,000 of gain if you are married filing jointly.

To qualify for this exclusion, you must meet both the ownership test and the use test:

• You must have owned the home for at least two years during the five-year period ending on the date of sale.
• You must have lived in the home as your main home for at least two years during that same five-year period.
  • Note: The two years do not have to be consecutive.

If your profit exceeds these exclusion limits, the excess gain will be subject to the federal capital gains tax rates mentioned above. More details can be found on the IRS website.

Pennsylvania Capital Gains Tax

In addition to federal capital gains tax, Pennsylvania imposes its own state income tax on all taxable income, which includes capital gains.

• Current Rate: Pennsylvania has an additional 3.07% capital gains tax rate (as of 2022 and continuing). This is a flat rate applied to your taxable capital gains, meaning it's not based on your income bracket like the federal tax.

Example: Let's say you bought a house for $200,000 and sold it for $350,000, resulting in a $150,000 gain. If you are a single filer and meet the primary residence exclusion requirements, the entire $150,000 gain would be excluded from federal capital gains tax. However, Pennsylvania's 3.07% capital gains tax would still apply to this gain.

• PA Capital Gains Tax: $150,000 * 0.0307 = $4,605.

Summary of Tax Rates

Here’s a table summarizing the general tax rates involved when selling a house in PA:

It's important to consult with a tax professional or real estate attorney for personalized advice regarding your specific situation, as tax laws can be complex and may change.