The tax implications when selling a home are a significant consideration for homeowners in Georgia. The state of Georgia, like many others, has specific regulations and guidelines that pertain to capital gains and other taxes that may be applied during the sale of a home. The nuances of these regulations can impact the net profit from your home sale.
Explore the tax obligations homeowners in Georgia may face when selling their house, offering insights that could save you thousands of dollars. Also, learn how the Peach State’s taxes compare to other states and how to report the sale for taxation.
Do You Pay Capital Gains Tax When Selling a Home in Georgia?
According to the Georgia Department of Revenue (GA-DoR), the state treats capital gains as income, subject to the state’s ordinary income tax rates. The GA-DoR considers capital gains a type of income not subject to withholding, similar to interest, dividends, alimony, and prizes. Georgia taxpayers who have realized capital gains may need to determine and pay estimated taxes to avoid a large tax bill at the end of the tax year.
Given that tax laws can change and vary by jurisdiction, it’s crucial to consult with a tax professional who is knowledgeable about Georgia’s specific tax regulations to get accurate information tailored to your situation.
The 3 Levels of Georgia Taxes on Real Estate
Georgia imposes three levels of taxes on real estate. Understanding the three levels of Georgia taxes on real estate is essential for property owners and prospective buyers, as it provides insight into the financial obligations associated with property ownership.
1. Federal Capital Gains Taxes
Rate: Varies from 0% to 20%, depending on the taxpayer’s situation. The most common rate is 15%.
Georgia’s first layer of real estate taxes is federal capital gains taxes. If you realize gains on the sale of your home, you owe taxes to the federal government.
The IRS defines two types of capital gains: short-term and long-term. It is considered a short-term capital gain if you have owned the property for one year or less before selling it. If you’ve held it for over a year, it is a long-term capital gain instead.
Short-term capital gains are taxed as ordinary income, meaning the tax brackets for this type of gain are identical to those for standard federal income taxes.
Long-term capital gains tax brackets are calculated based on the seller’s filing status and income levels:
- 0% for taxpayers meeting the following conditions:
- The taxpayer’s filing status is “Single” or “Married Filing Separately” and their taxable income of $41,675 or less
- The taxpayer’s filing status is “Married Filing Jointly” or “Qualifying Surviving Spouse,” and their taxable income of $83,350 or less
- The taxpayer’s filing status is “Head of Household” and their taxable income of $55,800 or less
- 15% for taxpayers meeting the following conditions:
- The taxpayer’s filing status is “Single,” and their taxable income is over $41,675 but $459,750 or less
- The taxpayer’s filing status is “Married Filing Jointly” or “Qualifying Surviving Spouse,” and their taxable income is over $83,350 but $517,200 or less
- The taxpayer’s filing status is “Married Filing Separately,” and their taxable income is over $41,675 but $258,600 or less
- The taxpayer’s filing status is “Head of Household,” and their taxable income is over $55,800 but $488,500 or less
- 20% for taxpayers exceeding the maximum thresholds outlined for each respective filing status in the 15% category (e.g., taxpayer filing as single and earning over $459,750)
Paragraph 121 of the Internal Revenue Code (IRC) outlines exceptions to long-term capital gains taxes. Sellers can exclude up to $250,000 (or $500,000 for married couples filing jointly) on the gains realized following the sale of their home if they pass the “ownership and use tests.” You qualify for this exclusion if:
- The house sold was your primary residence
- You owned the home for two years or more
- You lived in the home and used it as your primary address for two years or more
How is the Federal Capital Gains Tax Calculated?
According to the National Association of Realtors, the median period of homeownership in the United States is 13 years. While the exact duration varies by area, it typically falls between 6 and 21 years. These stats show that most individuals selling a home in the United States will pay long-term federal capital gains taxes.
Example: Mitch is a single taxpayer living in Atlanta, GA, with an annual income of $175,000. Four years ago, Mitch purchased an apartment in Atlanta for $180,000, which he used as his primary residence one day after acquisition. Mitch then sold the apartment for $259,000, meaning Mitch realized a capital gain of $84,000. This capital gain is considered to be long-term because Mitch owned the apartment for over a year.
Due to Mitch’s income and filing status, he falls into the 15% federal tax bracket. Normally, he would owe $12,600 to the federal government in capital gains taxes. However, due to Mitch realizing a long-term capital gain and owning and using the apartment as his primary residence for more than two years, he qualified for the federal exemption from capital gains taxes as outlined in IRC Paragraph 121.
Mitch is a single taxpayer, meaning he is entitled to the exclusion of up to $250,000 of capital gains from federal capital gains taxes. Consequently, Mitch can exclude all his capital gains from federal taxation.
2. Georgia State Capital Gains Tax
Rate: 1% – 5.75%
Any capital gains realized on the sale of a house in Georgia are taxed according to the state’s six-tier tax brackets. The tax rate depends on the taxpayer’s filing status and annual Georgia taxable income. While the tax rates vary from 1% to 5.75% for all filing statuses, the exact income thresholds vary depending on whether the taxpayer is filing as single, married and filing jointly, head of household, or married separately.
How is the Georgia State Capital Gains Tax Calculated?
Because the state treats capital gains as income, any gains realized during a given tax year are added to the taxpayer’s yearly income. The state then taxes them accordingly.
Example: A single taxpayer earning $80,000 of state-level taxable income in Georgia falls into the top tax bracket. They are required to pay $230 plus 5.75% of the amount over $7,000. In this case, the amount equals 5.75% of $73,000, or $4,197.50. In total, this taxpayer must pay $4,427.50 of state income taxes.
If the same taxpayer were to sell a home in Georgia and realize a capital gain of $84,000, that amount is added to their standard yearly income, so they are taxed on $164,000. While the tax bracket wouldn’t change, the taxpayer pays $230 plus 5.75% of the amount earned over the first $7,000. In this case, that number would be 5.75% of $157,000, or $9,027.50. In total, this taxpayer would owe $9,257.50 in state income taxes.
3. Georgia Transfer Taxes
Rate: 0.1% ($1 for the first $1,000 + $0.10 for each additional $100)
The Georgia Department of Revenue taxes all property transfers through the state’s Real Estate Transfer Tax (RETT). The tax rate is based on the property’s final sale price. It equals $1 for the first $1,000 or fractional part thereof in the consideration amount plus $0.10 for every $100 or fractional part thereof after the first $1,000.
You can expect to pay approximately 0.1% of the property’s final sale price or fair market value in transfer taxes. The GA-DoR specifies that while the seller is typically liable for the RETT, it is legal and a common practice for both parties to form different arrangements, such as requiring the buyer to pay the tax instead.
How is the Georgia State Transfer Tax Calculated?
The Georgia Real Estate Transfer Tax (RETT) is calculated based on the property’s final consideration amount at the time of transfer.
Example: When Mitch sold his Atlanta apartment for $259,000, one of the taxes he owed to the state was the Real Estate Transfer Tax (RETT). He owes $1 for the first $1,000 and $0.10 for every $100 in the remaining $258,000. In this case, the RETT equals $1 plus $25.80, or $26.80. As the seller, absent an arrangement with the buyer to split or pass the tax on to them, Mitch must pay this tax.
Georgia Exemptions and Deductions for Real Estate Taxes
Georgia offers various exemptions and deductions for real estate taxes, providing potential relief for property owners. These exemptions and deductions are designed to lessen the tax burden on certain eligible individuals, properties, or situations.
Georgia Capital Gains Exemptions
Georgia state law includes an exemption from taxation on capital gains and other forms of income called the Retirement Income Exclusion.
1. Retirement Income Exclusion
The Retirement Income Exclusion program allows specific taxpayer categories to benefit from an adjustment to their retirement income on the state’s tax returns. The state considers seven forms of income to count as retirement income for the purposes of this program, including capital gains income.
This program was implemented in 1981 to encourage consumer activity from senior citizens.
According to the GA-DoR, two categories of taxpayers may benefit from the Retirement Income Exclusion: seniors (aged 62 or older) and permanently and totally disabled taxpayers of any age. Per the Georgia Department of Audits & Accounts, the exclusion rates are as follows:
- Senior citizens aged 62 to 64 can exclude up to $35,000 of retirement income from taxation
- Senior citizens aged 65 or older can exclude up to $65,000 of retirement income from taxation
- Taxpayers of any age qualifying as permanently and totally disabled as defined by the IRS can exclude the same amount as senior citizens aged 62 to 64.
Georgia Transfer Tax Exemptions
The Georgia Code (O.C.G.A. 48-6-2) outlines several exemptions to the state’s Real Estate Transfer Tax, including:
1. Transfers to Secure Debts
Any property transfer conducted to secure a debt, such as the repossession of a real estate property, is exempt from the Georgia RETT.
2. Gift Transfers
A real estate property transfer is considered a gift transfer if the donor does not receive anything from the recipient in return. This type of transfer is exempt from the Real Estate Transfer Tax in Georgia.
3. Transfers to Government Entities
According to the Georgia Code, property transfers to specific government entities are exempt from the Georgia RETT if any of the involved parties is one of the following:
- The United States government
- The Georgia state government
- Any agencies, boards, commissions, departments, or political subdivisions of the United States
- Any agencies, boards, commissions, departments, or political subdivisions of Georgia
- Any public authority, as defined in Georgia law
- Any nonprofit public corporation, also known as nonprofit public-benefit corporations
4. Specific Types of Leases
In Georgia, leasing of lands, tenements, standing timber, and other real property, or leases of any estate, interest, or usufruct in the same property types are exempt from the RETT.
5. Transfers Due to a Divorce
Transfers of property between husband and wife in connection with a divorce case in Georgia are exempt from the Real Estate Transfer Tax.
6. Transfers in Lieu of Foreclosure
Deeds transferred in lieu of foreclosure are exempt from the Real Estate Transfer Tax if the deed issued is for a purchase money deed to secure debt with over 12 months of existence. The deed must have existed, been executed, and recorded for 12 months before recording the deed in lieu of foreclosure.
7. Transfers for Public Transportation Purposes
8. Specific Transfers with No Consideration
Georgia state legislation outlines three property transfer categories exempt from the RETT if the transfer has no valuable consideration:
- Deeds of assent or distributions by executors, administrators, guardians, trustees, or custodians
- Deeds or instruments exercising power of appointment
- Any transfer of real estate property to or from a fiduciary
9. Transfers From Property Divisions
If a property transfer in Georgia occurs to complete a division between joint tenants or tenants in common, the transfer is exempt from the RETT if no consideration is attached.
10. Corporate Transfers
Property transfers involving corporations in Georgia are exempt from the Real Estate Transfer Tax if the transfer is to or from one or more individual owners to a corporation, partnership, or other entity, and the individual owners own or have a majority interest in the corporate entity involved as a party in the transfer.
Georgia Real Estate Taxes vs. Other States
While Georgia taxes capital gains as income, the state’s real estate tax laws do not include a local-level component, making it one of the more permissive states. Below is a breakdown of real estate laws and systems in similar states and how they compare with Georgia.
Ohio’s combined state and county-level real estate taxes make it one of the more expensive states to sell property nationwide.
Capital Gains Tax Rate: 0% – 3.99% for Tax Year 2022
Ohio legislation taxes capital gains realized from the sale of real estate property in the state as individual, nonbusiness income. For this reason, Ohioans must calculate capital gains into their state-level taxable income, as they will pay taxes on capital gains using the state’s standard income tax schedule.
Transfer Tax Rate: 0.1% (state-level) + 0.1% – 0.3% (local)
Ohio levies the Real Property Conveyance Fee, a two-tiered transfer tax with a state-level component and a variable local-level component.
The state-level Real Property Conveyance Fee is 1 mill or $1 for every $1,000 in the property’s final conveyance amount. The local-level equivalent allows counties to levy between 1 and 3 mills ($3 per $1,000).
Real estate taxes in North Carolina are near the national average. Most residents can expect to pay federal capital gains taxes, state income taxes, and state transfer taxes. Specific counties may impose additional transfer taxes.
Capital Gains Tax Rate: 4.75% for Tax Year 2023, 4.99% for Tax Year 2022
Capital gains realized in North Carolina are taxed as income, similar to Georgia. According to the North Carolina Department of Revenue (NCDOR), the state levies a flat individual income tax rate subject to frequent readjustments, typically yearly or biyearly. For Tax Year 2022, the income tax rate was 4.99%. The state changed the rate to 4.75% for Tax Year 2023.
Transfer Tax Rate: 0.2%
According to the North Carolina General Statutes (Sections 105.228.28, 29, and 30), the state collects a tax on property transfers called the Excise Tax on Conveyances. The rate is $1 per $500 or fraction thereof in the final consideration amount, or about 0.2%.
Michigan’s real estate tax laws are among the more permissive in the United States.
Capital Gains Tax Rate: 4.05% for Tax Year 2023, 4.25% for Tax Year 2022
Michigan taxes all capital gains realized in the state as income, subjecting them to the standard individual income tax schedule. The individual income tax rate in Michigan is flat, meaning it effectively has only one bracket.
Since the passage of the Income Tax Act, the rate has been reduced from 4.25% to 4.05%, effective January 1, 2023. Consequently, any capital gains realized in the state are subject to this rate.
Transfer Tax Rate: $3.75 per $500 (0.75%) state + $0.55 per $500 (0.11%) county
In addition to taxing capital gains as income, the Michigan Department of Treasury also levies the State Real Estate Transfer Tax (SRETT) on all transfers of property within the state’s borders from one party to another.
The SRETT tax rate is $3.75 for every $500 or fraction thereof in the consideration, equivalent to about 0.75%. The seller usually is responsible for paying the transfer tax unless the parties to the sale agree to a different arrangement.
In addition to the state-level transfer tax, each of the 83 counties in Michigan is authorized to levy an additional county-level transfer tax. The county-level transfer tax rate is the same in every Michigan county, at $0.55 per $500.
When Do You Pay Capital Gains Tax on Georgia Real Estate?
In Georgia, capital gains tax generally applies when you sell real estate at a profit. Capital gains are the difference between the purchase price (adjusted basis) and the sale price of the property. The tax is imposed on the gain realized from the sale.
For federal tax purposes, the IRS typically treats real estate as a capital asset, subjecting it to capital gains tax. The capital gains tax is due in the year the property is sold.
The state of Georgia treats capital gains as income, meaning Georgia residents must calculate their gains into their total taxable income on Form 500 – Individual Income Tax Return. The filing deadline is typically in mid-April. For Tax Year 2022, the filing deadline was April 18, 2023. Specific individuals may apply for an automatic six-month extension by submitting a Georgia Form IT-303 or receiving an IRS confirmation letter for a federal extension.
Short-Term vs. Long-Term Capital Gains Tax Rate in Georgia
Georgia law does not differentiate between short-term and long-term capital gains. According to the GA-DoR, all capital gains, whether short-term or long-term, are treated as income.
How to Avoid Capital Gains Taxes on Home Sale in Georgia
Georgian taxpayers may use multiple strategies to reduce or avoid paying capital gains taxes, including the following:
Strategy #1: Federal Exclusion of Long-Term Capital Gains
According to the IRS, you can exclude up to $250,000 (or $500,000 if married and filing jointly) of the gains realized from the sale of a home, provided the home was your primary residence. You can prove your home was a primary residence by passing the ownership and use tests, which require you to pass the following:
- Ownership test: You have owned the home for at least two years before the sale. Documents such as a deed and title insurance may constitute valid proofs of ownership.
- Use test: You must show proof of occupancy, meaning you have lived in the home and used it as your primary residence for at least two years before the sale. Documents used to prove occupancy are outlined in federal proof of occupancy guidelines.
Although it is not required for the ownership and usage periods to be consecutive, you must be able to prove both ownership and use of the home within five years of the sale. Additionally, you must not have used this exclusion for another home in the last two years.
Example: Miriam is a Georgia taxpayer filing as head of household. She lives in Marietta, GA, in a single-family home she purchased for $425,000. Miriam owned the property for 12 years and used it as her primary residence for the first 3 years of ownership and the last 4 years. Afterward, Miriam sold the property for $600,000, realizing a $175,000 long-term capital gain.
Although Miriam has owned the house for 12 years, the ownership and use tests only count the 5 years before the sale. Miriam is considered to have owned and used the property for 4 of these 5 years, meaning she passed both tests. Because she used the home as her primary residence and realized a long-term capital gain on the sale, she qualifies for the federal exclusion of long-term capital gains. As a head of household, she can exclude up to $250,000 of capital gains from the federal tax, allowing her to exclude 100% of the gains she realized on the sale of this home.
Strategy #2: State-level Retirement Income Exclusion
Georgia’s state legislation allows two categories of taxpayers to benefit from an income adjustment program, allowing them to exclude part of what the state considers retirement income from the state’s income taxes.
The following types of income qualify as retirement income for the purposes of the Georgia Retirement Income Exclusion program:
- Capital gains
- Interests and dividends
- Up to $4,000 of earned income, such as wages
Individuals eligible for the Georgia Retirement Income Exclusion program include taxpayers aged 62 and over, and taxpayers of any age recognized by the IRS as permanently and totally disabled.
According to the latest revision of the law, beneficiaries of this income exclusion program can:
- Exclude up to $35,000 of their retirement income if aged between 62 and 64, or if permanently and totally disabled at any age
- Exclude up to $65,000 of their retirement income if aged 65 or over
The Georgia Retirement Income Exclusion program applies to individual taxpayers regardless of filing status. Each member of a married couple, even if filing jointly, can individually benefit from this program.
Example: Miriam is a non-disabled, 67-year-old resident of Marietta, GA. Her annual income is $92,500. Her age allows her to benefit from the state-level Retirement Income Exclusion program. When Miriam sold her Marietta home for $600,000, she realized a long-term capital gain of $175,000.
Because Georgia taxes capital gains as income, she would normally be taxed as though she earned $267,500 for the tax year. However, her age allows her to benefit from the Retirement Income Exclusion program’s second tier and exclude up to $65,000 of retirement income from state-level taxation. Capital gains count as retirement income, allowing her to exclude $65,000 from her realized gains. Consequently, the state treats her as though she realized only $110,000 of capital gains and will tax her as though she earned $202,500 for the tax year.
Miriam is subjected to the state’s highest income tax bracket at this income level. As a head of household, she will owe $340 + 5.75% of the amount earned over the first $10,000, or $192,500. 5.75% of $192,500 equals $11,068.75, meaning Miriam will owe $340 + $11,068.75, or $11,408.75 in income taxes.
How to Report Your Property Sale for Taxes in Georgia
If you sold a property in the Peach State, you must report the sale to the IRS and include the capital gains earned in your Georgia state income tax returns.
Form 8949 requires you to report whether your gains are long-term or short-term. Short-term gains must be listed under Part I, whereas long-term gains must be listed in Part II. If you can exclude the gains you’ve realized with a specific property, enter the letter code “H” in column (f) on the line corresponding to that property, then write the corresponding adjustment amount in parentheses and as a negative in column (g).
After completing Form 8949, enter the corresponding information regarding short-term and long-term gains in IRS Schedule D (Form 1040). Part I lets you enter short-term gains, whereas Part II is for long-term gains.
Georgia Department of Revenue Tax Forms
Because Georgia treats capital gains as income, you must factor them into your state-level taxable income and report the total using a Georgia Form 500. Line 10 under Income Computation lets you enter your Georgia adjusted gross income (AGI), which should include any capital gains realized during the tax year.
If you qualify for the Retirement Income Exclusion, check Page 2 of Schedule 1 on your Form 500. Enter your total capital gains or losses for the tax year on Line 9.
Here are the answers to some common questions about capital gains taxes in Georgia when selling a residence.
You can defer paying capital gains taxes by reinvesting the sale proceeds through a qualifying like-kind 1031 exchange to purchase a similar property. Once that property is sold, you must pay taxes on the cumulative profit.
Yes. Land is a type of capital asset, like real estate property. If you sell land and make a profit, you realize a capital gain, making it taxable at the federal and state levels.
No. This exemption refers to a federal law that was repealed in 1997 and replaced by a policy that impacted all homeowners regardless of age. However, Georgia legislation features a state-level Retirement Income Exclusion allowing state residents aged 62 or more to exclude part of their capital gains and other forms of income from state taxation.
Both federal and state taxes apply to capital gains in the Peach State. The Georgia Department of Revenue considers capital gains part of a taxpayer’s income, meaning they are taxed through the state’s individual income tax schedule.
No, you pay capital gains along with your income taxes. You do not pay them as part of the closing costs of a home.
No. According to the IRS, all capital gains are taxable. However, specific types of capital losses are deductible, such as losses realized on business and investment property. You cannot deduct losses realized on personal-use property.
Yes. If you sell a secondary residence in Georgia, you’ll pay capital gains taxes at the federal level and adjusted income taxes at the state level. While you cannot benefit from the federal-level exclusion of capital gains, as it only applies to primary residences, you can exclude some of your gains if you qualify for the state-level Retirement Income Exclusion.
No. You realize a capital loss if you sell a home and earn less than you paid for it. While capital losses aren’t subject to capital gains taxes, they can be deducted. Federal law only allows you to deduct capital losses on a home sale if you used the property for business or investment purposes. Deductions do not apply to personal-use homes.
Georgia real estate laws do not have exclusions based on the length of homeownership.
Although the Retirement Income Exclusion allows Georgians over the age of 62 to exclude up to $35,000 (or $65,000 if 65 or over) of capital gains and other forms of income from taxation, the state’s real estate laws do not have provisions allowing taxpayers over a specific age to become 100% exempt from capital gains taxes.