Taxes on Selling a House in Massachusetts

When you hand over the keys to your Massachusetts property for the first time, this experience is typically an exciting moment. Unfortunately, along with the excitement, comes some sticker shock when you receive your settlement sheet. The complexities involved in understanding both State regulations and Federal requirements make it difficult at times to understand what you are being taxed on. But, by educating yourself about the tax implications prior to listing your property will help minimize any potential surprises that may arise during the sale process and allow you to retain more of the money that you have invested into your home.

The Massachusetts Transfer Tax (Deeds Excise)

In Massachusetts, there’s an additional fee the State requires just because they’ll record your new deed. That’s called the “Deeds Excise Tax“. The rates vary depending on where you live.

For the majority of Massachusetts, the Transfer Tax Rate is $2.28 per every $500 of your sales price.

So when you go to sell your house for $600,000, that would mean you’ll be paying a total of $2,736 in fees to the State at closing.

Please keep in mind that, depending on whether you’re selling in Barnstable County or elsewhere, the Transfer Tax Rates may also have a small surcharge. Generally speaking, these fees will come out of the seller’s pocket, so be sure to factor them in when determining how much money you expect to walk away with at closing.

Do I Have To Pay Capital Gains Tax When I Sell My House In Massachusetts?

Most homeowners worry about capital gains, however the truth is most people won’t have to worry about paying capital gains taxes when selling their property.

Due to IRS rules, as long as the property was your primary residence for at least 2 out of the past 5 years, you will be able to exclude up to $250,000 of the profits from sale (up to $500,000 if you’re married and filing jointly).

The way Massachusetts calculates tax on long term capital gains is generally around 5%. However, it is much higher when dealing with short term capital gain (when the property has been held for less than one year), which would be taxed at approximately 8.5%.

How To Increase Your Cost Basis To Lower Taxes On A Home Sale in Massachusetts

Some of the most effective methods for reducing your income tax burden include increasing your cost basis to be greater than what you originally paid for your property. The cost basis will increase with both the original purchase price and funds invested in the home throughout the years.

Have you replaced the roof in 2018? Added a deck? Renovated the Master Bath? All those documents are going to be valuable as they can reduce your taxable profit.

Don’t forget that the deductions available for all closing costs related to selling a home including commissions, legal fees etc., can also reduce your taxable profit.

Don’t Overlook “Hidden” Closing Costs When Selling Your Home

Although administrative fees and other minor expenses are often overlooked when considering how much money you will make from the sale of your house, they may be enough to affect your profit margin. These types of costs are usually pro-rated. So if your closing date occurs during a billing cycle, you could be paying for time you didn’t actually spend in your new home.

Massachusetts Municipal Property Taxes are usually billed on one of two schedules: Quarterly or Semiannually. Your closing date determines whether you receive a credit (if you’ve already made payments for some part of your last year in the home), or are required to pay the Buyer for time they occupy your home prior to receiving their first tax bill. These credits/debits will appear on your settlement sheet.

If your Town/City participates in the Community Preservation Act (CPA) – your property tax bills will show an additional charge (typically ranging from .01% to 0.03%). Therefore, when calculating your tax adjustment amounts, don’t forget about this addition since it is directly related to your total property tax liability.

You are liable for all Water/Sewer charges until such time as the Sale of your home takes place. Prior to closing, contact the local Water Department to arrange for a Final Reading. Typically, after the reading, the final bill will be presented to the Seller at the Closing Table so that the Buyer may begin without a lien filed against them by the municipality.

If you are selling a Condominium unit, you will need to obtain a 6D Certificate. This Notarized Document confirms that all current condominium association dues owed to the Association are paid in Full, including any Special Assessments. Most Associations require a modest Administration Fee ($50-$150) from the Seller for producing this document.

Don’t forget about the Smoke & Carbon Monoxide Certification. As a Seller in Massachusetts, you are required to have the Fire Department perform a certification inspection of your smoke detectors and carbon monoxide detectors. A typical cost associated with this is a small local fee, often ranging from $25-$100.

Calculating Net Proceeds From a Home Sale in Massachusetts

To get an idea of how much money you’ll take away after you sell a house in Massachusetts, you need to go beyond the price of the house. Below is a detailed explanation of the steps involved in calculating your “walk-away” figure:

Mortgage Payoffs & Liens

The largest reduction to your “take-home” proceeds is usually the payoff on your current mortgage.

Keep in mind that your payoff quote represents the total amount owed to close out your loan (which may include the cost of paying off the mortgage). Your current mortgage balance is less than this because your lender has already accounted for the interest that has accrued from the date of your previous payment.

You also need to consider any secondary liens, such as HELOCs, second mortgages, or mechanic’s liens.

Transaction Closing Costs

In general, closing costs in Massachusetts vary from 5-10% of the sales price. Most commonly, these expenses relate to brokerages’ commissions and professionals’ fees.

Real estate brokerage commission charges are the greatest common expense for closing costs. Brokerage commissions are often divided equally among listing brokers and buyers’ agents.

Legal Representation:

Because Massachusetts is considered an “attorney-state”, an attorney must represent all parties during the closing process. As a result, each party is responsible for their own attorneys’ fees for preparing deeds and representing them at closing.

Recording Fees:

Each county in Massachusetts collects small recording fees from the Registry of Deeds to record the new deed and/or discharge(s) of any existing mortgage(s).

Step 3: The Massachusetts Deeds Excise Tax

MA requires a transfer tax, called the Deeds Excise Tax on sellers. This tax applies solely to the seller.

For most Massachusetts counties, the tax rate is $4.56 per thousand dollars of value.

Common Tax Mistakes To Avoid When Selling Your Massachusetts Home

I see sellers lose money every year because of simple oversights. The biggest mistakes are failing to track home improvement receipts and moving out of a primary residence too early, which can disqualify you from that massive IRS tax exclusion.

If you want a straightforward sale without the headache of repairs, staging, or open houses, Pavel Buys Houses offers a simpler path.

We buy Massachusetts homes in “as-is” condition for cash. We handle the paperwork and close on your timeline… usually in two weeks or less, so you know exactly what you’re walking away with without the typical stress of the market. If you are considering selling your home in Massachusetts, get in touch with us by filling out our quick form here.