Selling your home is a significant undertaking that carries with it its own fair share of emotions and trials. Although you may be feeling quite satisfied in the event that you sold your home for a profit, there are a number of financial obligations which still must be satisfied, one of those being excise taxes. An excise tax is commonly defined as an indirect tax on a product or service offering that is paid for by the individual selling the goods in question. Given the fact that the seller bears the responsibility for the tax, it is relatively easy to see how excise taxes differ from other taxes imposed on transactions, such as sales tax. Although some homeowners may be eager to claim as many deductions as possible when selling their property, excise taxes are considered non-deductible and cannot be itemized during tax return filing
Claiming Excise Taxes
When both a buyer and seller finalize the terms of a property sale, the seller will be required to pay excise tax on the value of the transaction. Depending upon the specific state the seller lives in, excise tax rates could vary significantly. Generally speaking, the treasurer's office in your local county will be responsible for collecting excise taxes on the state and local level. As could be expected, the IRS will ensure that applicable excise taxes are paid on the federal level.
Deducting Excise Taxes From Home Value
Although excise taxes cannot be deducted on your tax return, they can help reduce the value of the sale itself. In fact, excise taxes can be subtracted from the final sale price when listed on your tax return. Consequently, excise taxes can help lower any capital gains liability an individual may be facing following the sale of their property. That being said, in a situation where the buyer of a property agrees to pay some or all of the excise taxes, they can no longer be used by the seller as a tool to reduce capital gains liability.
With that in mind, some home sellers may find it in their best interest to pay excise taxes to the fullest extent in order to ensure that the sale of their property does not push their income level above the capital gains threshold. Currently, individuals are not required to pay capital gains tax if the proceeds of the sale do not exceed $250,000 for single tax filers and $500,000 for couples.
Excise Taxes and Tax Return Filing
When it comes time to complete your tax return, you will likely notice that the value of your home sale will be listed on IRS Form 1099-S. This sum will have taken into account any excise taxes you paid and will be adjusted downward accordingly. Keep in mind that if the buyer of the property subsidizes your excise tax real estate duties, their contributions will also be factored into the sum that appears on Form 1099-S.
Once you have a completed 1099-S available, you can begin to formulate a precise overview of any capital gains tax obligations you may now carry. Given the size of the capital gains exclusion, it stands to reason that some individuals will not be forced to pay these taxes at all. While this may certainly be the case with respect to capital gains taxes, it is essential to remember that excise taxes do not have any available exclusion opportunities and should always be paid by the seller of the property (or the buyer if this is agreed upon). It is strongly recommended that individuals consult with a tax professional if they continue to have doubts about filing taxes and excise taxes in general.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.