Understanding Taxes & Real Estate Terms Like a Pro

Taxes play a major role in every stage of real estate—whether you’re investing, buying, or selling. Knowing how taxes impact your decisions, and understanding key real estate terms, can help you protect your finances and maximize your results. Here’s what you need to know if you’re entering the market in Washington or Oregon.

Taxes for Investors: Protecting Your Returns

Real estate investing offers strong opportunities in the Pacific Northwest, but taxes can make or break your profitability.

• Property Tax: Paid annually and varies by county.

• Capital Gains: Profits from selling investment properties are subject to taxation.

• Depreciation: Investors can deduct the cost of wear and tear over time, lowering taxable income.

Tip: Always maximize depreciation. And keep in mind, Washington has no state income tax, while Oregon does—this difference could influence your long-term investment strategy.

Market Insight: With inventory still below average, property prices in both states remain high. This creates more competition for investors, but also a chance to benefit from strong appreciation.

Key Terms for Investors:

• Escrow – A third party holds funds and documents until conditions of the sale are met.

• Contingency – A requirement in the contract, such as financing approval.

• Earnest Money – A buyer’s good-faith deposit that may be kept by the seller if the deal falls through.

Taxes for Buyers: Planning Ahead

Buying a home is exciting, but it comes with tax implications that shape your financial future.

• In Oregon, buyers may benefit from exemptions and credits, especially for first-time buyers and energy-efficient homes.

• In Washington, while there’s no state income tax, property taxes can be significant—plan for this in your monthly budget.

Tip: Build your financial plan around both your mortgage and property tax costs.

Market Insight: Mortgage interest rates continue to fluctuate, directly impacting affordability. Still, opportunities exist for buyers in select neighborhoods across both states.

Key Terms for Buyers:

• Capital Gains – Profit when you sell an asset for more than you paid.

• Equity – The portion of your property you truly own after subtracting what you owe.

• Depreciation – A decline in value over time, such as with vehicles or electronics, and in real estate it can provide tax benefits.

Taxes for Sellers: Maximizing Profit

When selling, taxes can take a big bite out of your proceeds if you’re not prepared.

• Capital Gains Exclusion: If you’ve lived in your home for two of the last five years, you may exclude up to $250,000 ($500,000 for married couples) from capital gains tax. Profits above that are taxable.

Tip: Calculate your net profit after taxes before listing so you know what you’ll walk away with.

Market Insight: Low inventory gives sellers leverage, but higher home prices may increase tax obligations. Planning ahead prevents unpleasant surprises.

Key Terms for Sellers:

• Appraised Value – A professional’s assessment of your home’s worth.

• Market Value – The price your home could sell for today based on buyer demand and comparable sales.

Why Taxes Apply When Selling

One of the most common questions sellers ask is why they must pay taxes when selling a property. The answer lies in capital gains tax.

• If you sell for more than you originally paid, the profit is taxable.

• Primary residence exemptions allow many sellers to keep much of their profit, provided they meet ownership and use requirements.

Market Insight: Rising property values in Washington and Oregon mean more sellers could face taxable gains, especially longtime owners.

Tip: If you’re unsure about your potential tax liability, review your options before listing. Early preparation can save you money.

Final Thoughts

Taxes are a critical part of every real estate transaction. Whether you’re investing, buying, or selling, understanding how they work—and mastering key real estate terms—can help you avoid costly mistakes.

Ready to make your next move with confidence? Contact me today for a personalized review of your tax strategy and real estate goals.