Taxes on Selling a House in Arizona: What to Expect

If you don’t quite check all of the IRS criteria boxes, you may still qualify for a partial exclusion of gain. This can happen if the main reason for your home sale is a change in workplace location, a health issue, or an unforeseeable event. For details on such circumstances, please refer to IRS Publication 523.

“One of the biggest things I tell all my clients is that if you’re going to be in a position where you’re going to have a substantial profit, talk to a CPA before we put it on the market,” Potter advises. “The last thing you want to do is close, and then all of a sudden, there’s an unexpected $150,000 tax bill. Nobody likes that.”

How to report your Arizona capital gains taxes

For your federal return, report your capital gains and losses by using U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040). You can report your Arizona capital gains or losses on Arizona Form 140.

Does Arizona charge a transfer tax?

A transfer tax is a transaction fee some states tack onto the sale of land or real property, like a home. Fortunately, Arizona does not impose a transfer tax on real estate sales, which is another reason why the state ranks among the lowest for overall tax burdens.

Prior to 2009, home sellers in Arizona were responsible for a transfer tax until Proposition 100, the “Protect Our Homes Initiative”, was signed into law.

However, there have been some attempts to reinstate an Arizona transfer tax, but none have gained traction. HB2683, a bill proposed in February 2023, would assess a real estate transfer tax on properties transferred to institutional investors, which the bill defines as investors with assets exceeding $25 million.

Property taxes owed

Property tax rates can vary by country. The average rate property owners pay in Arizona is 0.63% of the assessed value of their home, well below the national average of 0.99%.

For comparison, here are the Arizona counties with the highest and lowest effective property tax rates

Highest property tax rates

• Pima County: 0.89%
• Yuma County: 0.79%
• Santa Cruz County: 0.76%

Lowest property tax rates

• Apache County: 0.34%
• Greenlee County: 0.37%
• Coconino County: 0.48%

Property taxes billed

Property taxes in Arizona are typically billed in two installments. The first installment is due on October 1 of the tax year and becomes delinquent after November 1. The second installment is due on the following March 1 and becomes delinquent after May 1.

However, if the total amount of property taxes due is $100 or less, the state requires the full amount to be paid in a single installment by November 1.

Regardless of the amount of property taxes that are due, an Arizona taxpayer has the option of paying the full amount by December 31, and interest will not be collected for failure to pay the first installment by October, according to the Arizona Department of Revenue.

A house-selling tax mistake to avoid

“The biggest mistake I see sellers make is not knowing that they’re going to be liable for taxes after the sale, because it’s not something that’s taken off of their proceeds at the beginning,” Potter says. “Then they go spend their money, or they go and buy another property, and they don’t realize that they have a tax liability that needs to be paid to either the state or the federal government.”

He says this unpleasant surprise can easily be avoided if you consult with a financial advisor before the sale. “This happens to people who just didn’t know and didn’t have anybody tell them. Talk to a CPA so you know what to set aside for taxes.”

Selling an inherited house in Arizona

There are no estate or inheritance taxes in Arizona, so you won’t owe state taxes just for inheriting a property. As the heir, however, you do take on any debts attached to the property, such as an outstanding mortgage.

When selling an inherited home, many of the same considerations apply as they do to selling any Arizona property, including property taxes. Where things differ is with capital gains.

Fortunately for heirs, the values of inherited assets are adjusted by what’s called a step-up in basis. This means that no matter how much an Arizona home has appreciated in value since it was originally purchased, a decedent’s heirs are not responsible for paying the taxes on those historical gains if they choose to sell the home. Rather, the property automatically converts to the current market value.

If, as the heir, you decide to immediately sell the property for the assessed market value, then there are no gains. However, if they sell the property for more than the fair market value or choose to hold onto the property for a while before selling and its value continues to appreciate during that time, then those are considered taxable gains.

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Other selling expenses to anticipate in Arizona

• Title fees: These consist of title insurance and a title search. Title insurance is a contractual obligation to protect against any issues with a home’s title, such as illegal deeds, undiscovered wills, or forgeries. These can range between 0.5% and 1% of the sale value. A title search, which costs between $100 and $250, can be paid by either the seller or the buyer and is done to prove that the seller is the rightful owner of the property and that there are no outstanding claims or judgments.
• Settlement fees: These fees typically amount to about 1% of the home sale. This lump sum (often referred to as escrow fees) is issued by the title company, escrow company, or attorney facilitating the transaction’s closing. The expense is designed to cover all that’s involved in handling the closing paperwork and distributing funds to the appropriate parties. Again, this fee can be paid by either the buyer or seller but is often split between both parties.
• Agent commissions: The agent commission fee in Arizona is generally 5%-5.5%, and the buyer’s agent and seller’s agent split the commission. The seller typically pays for both agents’ commissions, but a recent court settlement by the National Association of Realtors is poised to change this, allowing buyers to negotiate Realtor fees directly with their agents.

Ways to prepare for taxes after a home sale

Taxes after a home sale don’t need to be a surprise or intimidating. Some simple steps can help you prepare for what’s to come if you decide to sell a home in Arizona.

• Know your home’s value: One initial step is to use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your home might be worth can help you calculate the potential capital gains from the home sale.
• Save the right documents: Another step is to know what tax documents you will need if you purchase or sell a home. Consult with your tax advisor about the federal and state documents required to file in Arizona, and what tax breaks might be available for your selling situation.
• Find a top agent: Another helpful step can be to partner with an experienced Arizona real estate agent who can guide you through the home sale process. A qualified agent can help you understand the tax ramifications and ensure a favorable outcome by maximizing your profit. Our data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 10% more than average agents.

HomeLight makes it easy to find top-rated real estate agents in your Arizona market. We account for factors like the agent’s sale-to-list-price ratio and how that maps to local price trends so that you can find top agents who will put more cash in your pocket when you close your sale.

Potter shares these parting insights for Arizona home sellers: “The best advice for selling a home in Arizona is to price it correctly and do all the little things to set your home apart from your competition. If there’s another home that’s an exact model match to yours five doors down the street, but they haven’t done things like decluttering, curb appeal, or a fresh coat of paint, you’ll get the buyers. This will also cut down your days on market and help you sell for a higher price.”

Writer Max Efrein contributed to this post.

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