Owning a home is definitely a major objective for the average person, and getting to own your dream home is an even better experience. What happens, however, if you wish to sell? If the value of your dream home has increased, you are more likely to have to pay sales tax. So, do you pay sales tax on a house in Arizona?
Do You Pay Sales Tax on a House in AZ?
No, you do not pay sales tax on a house in Arizona. Arizona is one of only fourteen states that does not levy a real estate transfer tax. The National Association of Realtors (NAR) opposes the imposition of these fees because they burden both parties to a sale agreement, reduce affordable housing, and are a poor source of revenue for the state.
In the past, Arizona residents had to pay sales tax on their homes. However, the “Protect Our Homes Act of 2009” which was enacted as a result of a constitutional amendment in 2008, eliminated sales tax levies on buyers and sellers.
Additional Property Taxes in Arizona
One of the less enjoyable aspects of selling or buying a house is property tax payment. In Arizona, your tax payment eligibility is determined by two factors:
- Property value appreciation or how much capital has tacked on
- Duration of residence in property
Following a sale, if the home was your primary residence for at least two out of the previous five years, you would be eligible to access up to $250,000 tax-free profits. For couples, this gain goes up to $500,000.
Before the sale of a property, people who have resided in it for at least two years out of five are not eligible to pay a property tax of up to $250,000 in profits. Couples are allowed $500,000 in tax-free gains.
The tax cut resulting from the sale of a primary residence where you have resided for at least two out of five years rule applies to all home sellers in Arizona. However, you would be ineligible if you already accessed said tax cut on another home within the last two years.
Tax Exemptions for Home Sellers and Buyers in AZ
You can be exempted from paying some taxes on your property or see a cut in the total amount you should pay. However, these exemptions are not available to all sellers and buyers, only to a few who qualify for them. To qualify, you would likely be required to provide evidence of carrying out activities that these exemptions cover.
Tax Breaks for Home Sellers
There aren’t a lot of tax breaks for home sellers. However, the few available to them can turn out to be quite the cost saver if filing is done right. Tax exemptions for home sellers chiefly center around improvements or repairs as well as interest on mortgage. Detailed evidence is usually required to claim exemption.
Deductions for Home Improvements
You can claim a tax deduction if you can prove that you made any modifications to the house that is for sale and that these upgrades are related to the sale of the property.
Repairs aren’t the only type of improvements that may be performed on a home. The following are some other important enhancements:
- Putting solar panels on the roof
- Installing new flooring
- Including a pool
- Kitchen renovations
Interest on a Mortgage
This refers to the interest that you make with your mortgage payments on a monthly basis. You can successfully recoup this interest in the form of a deductible. There are no restrictions until the amount of interest owed is in excess of one million dollars.
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Tax Breaks for Home Buyers
You can obtain tax breaks including credit in various ways. This may vary by county and may depend on your personal record upon review as well. To adequately explore this avenue, you could enlist the help of a certified tax professional.
This comes in the form of credit for buyers. Buyers who demonstrate creditworthiness may be eligible for a 30-year fixed rate mortgage from the Arizona Industrial Development Authority. A 5% down payment aid scheme is also available to the buyer.
Senior Property Valuation Protection Program
The Senior Property Valuation Protection Program (SPVP), also known as the ‘Senior Freeze’, is a program designed to protect seniors’ property values. Elderly people over the age of sixty-five years and whose yearly earnings are below $36,000 or $45,000 (in the case of couples), can request that the value of their home be frozen due to tax costs.
Most states grant tax exemptions to seniors regardless of their income or savings, costing the US around 27 billion dollars per year. However, this provides adequate protection for these persons in the event of tax increments due to increase in assessed property value.
Are Arizona Seniors Eligible for Property Tax Relief?
In Arizona, seniors are eligible for certain property tax relief. It does, however, appear in a variety of forms:
- For widows, widowers, and people who are fully incapacitated. Those who fall into this category may see the assessed value of their property reduced by up to $3,000. This in turn reduces property taxes.
- Deferred taxation where property taxes are not required to be paid until the estate is sold, the owner dies, or the property generates profit.
- Property tax freeze allowed for by Proposition 104, which was passed in the year 2000.
How Much Taxes Do You Pay on Real Estate Sales?
The amount of tax you pay when selling a home is determined by capital gains. When a property is sold at a loss, sales taxes are rarely levied. Where a profit is made, however, some taxes may be levied against the seller. These include the following.
- Capital Gains Tax (CGT)
- Recapture depreciation
- State Income Taxes (SIT)
When dealing with a property that you are renting out or a company-owned property that is used for business purposes, these taxes apply.
The primary objective of any home sale is to maximize capital gains. Arizona’s exclusion of sales tax goes some way to boost capital gains. Another major way to retain profits is by opting for a flat fee realtor like AZ Flat Fee, allowing you save a couple thousands in real estate commissions. You can also save costs in other ways which your realtor would likely detail.