The taxes you will owe on the sale of your house depend on the taxes that apply in your locality. In the

United States, there is a possibility of local, state, and federal taxes being owed on the sale of a house.

Local Property Taxes

Local property taxes are paid based on the assessed value of the home. At the time of the sale, you typically pay the property taxes for the months of the year that you owned the house to the person buying the house. At the end of the year, they will pay the full year's property tax, which will include the money paid at the closing for the property tax to that date.

Other taxes may be assessed by cities, counties, or other local taxing districts on property sales. These may include:

• Taxes or fees for documentary stamps required for the legal papers
• Local income tax (if any) on profits (if any)
• Recording fees or taxes for changing property ownership documents

Taxes and fees may be reduced or waived entirely if the house being sold is the primary residence of the seller.

State Taxes

States may also levy taxes on property transactions. You may owe state income tax or a state capital gains tax on the profits, if any, from the sale. State documentary stamps that require payment of taxes or fees may be required for the transfer of property. State taxes may be different if the house is your primary home.

Federal Taxes

The federal government allows you to avoid taxation on up to $250,000 ($500,000 for a married couple) of the sales profit of your home if you meet the ownership and use tests and have not sold another home under this exclusion in the previous two years. The tests are simple. Have you owned your home for two years? Have you lived in it for two years? If you can answer in the affirmative to those questions, then you can take the exclusion.

The amount of gain on the sale of a home, for federal tax purposes, is determined by subtracting the sale expenses and the adjusted basis of the house from the purchase price. The adjusted basis is the value of the home when bought or received plus adjustments that take into account improvements you may have made to the property. The original value may be determined by the sale price or, in the case of an inheritance or gift, the fair market value of the property at the time it was acquired.