How do you know what’s the Seller net profit? As a Seller, you can expect to pay taxes, fees, commissions and miscellaneous closing costs that will have to be deducted from the Seller’s proceeds at closing.
In order to avoid bad surprises, Here are the typical expenses that you should keep in mind:
Real estate agents earn a commission based on the sales price of the property and receive it once the transaction is closed. Commissions are negotiable between listing agents and the Sellers however a typical commission is 6% of the sales price. Normally, the commission is split between the buyers’ agent 3% and the listing agent 3%.
The commission is always paid by the seller at the closing, where the fee is directly subtracted from the Seller’s proceeds of the sale.
Seller is responsible for title insurance, hone warranty, documentary stamp taxes, title search, lien search, loan payoff, etc. Seller will pay between 1 to 2 percent of the purchase price of their home in closing costs.
CAPITAL GAINS TAX
The capital gains tax rate is 20% for long-term capital gains which are profits on the sales of assets held for more than a year.
Up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home are exempt from taxation, if you have lived in the home as your principal residence for two out of the last five years.
Short-term capital gains, which are profits on the sales of assets held less than a year, are taxed as regular income between 0 to 39.6%.
FIRPTA – Foreign Investment in Real Property Tax Act
The FIRPTA, is a US tax law that imposes income tax on foreign persons disposing of United States real property interests. This certificate of non-foreign status protects the Buyer from liability for the IRS withholding tax which applies if the seller is a foreign person.
If the Seller is a US Citizen or green card holder the FIRPTA does not apply. If the Seller is not a US Citizen or a permanent resident then the Buyer may have to withhold 10% of the sale price at the closing.