What taxes do you pay when you sell a house in Arkansas?

Under 26 U.S.C. 121 you can exclude up to $250,000 of gain on the sale of a main home, or up to $500,000 on a joint return. The test is ownership and use: during the five years ending on the sale date, you must have owned the home and used it as your principal residence for periods adding up to two years or more. Those 24 months do not have to be one unbroken stretch.

It is not a once in a lifetime break. You can use it again, but only once in any two-year period. It does not apply if you acquired the property through a like-kind exchange within the past five years. If you sell at a loss on a personal residence, you cannot deduct it.

Military sellers get one more break. If you or your spouse serve on qualified official extended duty, meaning a duty station at least 50 miles from the house or living in government housing under government orders, you can choose to pause the five-year window while you serve. The pause is a choice you make with your return, it can stretch the window by up to ten years, it covers only one property at a time, and the duty has to run under orders for more than 90 days or for an open-ended period.

Arkansas adopts the federal home-sale exclusion outright. Ark. Code Ann. 26-51-404 adopts 26 U.S.C. 121 for computing Arkansas income tax, and the state's own return instructions repeat the same dollar limits and the same two-year test. So if the federal exclusion covers your gain, Arkansas is generally covered too.

If gain is still left over, Arkansas is unusually kind to it. The state taxes only half of your net long-term capital gain: Form AR1000D multiplies the net long-term gain by 50 percent, and that half flows into your regular income. Short-term gain, from a house held a year or less, is taxed in full. There is no separate Arkansas capital gains rate, so the taxable portion is taxed at ordinary Arkansas rates, which top out at 3.7 percent for tax years beginning in 2026.

If you have already moved out of state, Arkansas still wants a return. Nonresidents who received any gross income from Arkansas sources must file, regardless of filing status or amount, on Form AR1000NR.

Start with what the house cost you, then add what you spent improving it. Two situations do not start there, and both are covered below: a house you inherited, and a house you owned with a spouse who died. The IRS counts work that adds value, prolongs the home's life, or adapts it to new uses: a new roof, new siding, an added bathroom or bedroom, a garage, a heating system, central air, a kitchen modernization. It does not count repairs and maintenance that simply keep the house in good condition, like painting, fixing leaks, filling cracks, or replacing broken hardware. One exception worth knowing: when repairs are done as part of an extensive remodel, the whole job counts as an improvement.

On the other side, your costs to sell come off the sale price before the gain is figured. Keep receipts for improvements as long as you own the house. Decades of small projects are the difference between a taxable gain and no gain at all, and nobody reconstructs them from memory at closing.

If you inherited a house, start with your cost basis, not with the home sale exclusion. Federal law usually resets the basis of inherited property to its fair market value on the date of death. You owe tax only on gain above that value, so on a sale not long after the death the taxable gain is often small or nothing.

The home sale exclusion is a separate rule. To use it you have to have owned the house and lived in it as your main home for at least two years out of the five years before you sell. If you inherited a house and never lived in it, you do not meet that test. If you moved in and lived there two of the last five years, you do. If the house was your spouse's, read the next section, because a different rule can apply to you.

One thing to know before you do any of this math. Gain is not your sale price. It is what you sell for, minus your basis and your costs to sell.

Your basis is the number your gain is measured against. When a married couple owned a house together in Arkansas and one of them dies, the basis resets on the half that belonged to the spouse who died. That half is valued as of the date of death. It works this way no matter which of you paid for the house. Your own half keeps the basis it already had, which is what you paid for it plus the improvements you made.

You may have read that the whole house resets. That is the rule in the nine community property states. Arkansas is not one of them, so only the one half resets here.

How the deed is worded rarely changes this. Tenants by the entirety, joint owners with right of survivorship, or a deed with both your names on it all reach the same half. Ask a tax preparer if someone besides the two of you is on the deed, or if the deed splits the house into unequal shares, because those are different rules.

Three situations work differently. If the deed had only your spouse's name on it and the house passed to you, the whole house gets a new basis, not half. If both names went on the deed before 1977, an older rule may apply, and it can work in your favor. And if you are not a United States citizen, the half rule does not apply to you. Any of the three is worth a question to a tax preparer.

A reset half is usually not what decides your tax bill. If you are not married when you sell, you can count the years your spouse owned and lived in the house toward the two year test, even if you did not live there with them. Those years still have to fall inside the five years ending on your sale date, so a house that sat empty for years after the death can fall outside the window. That route covers up to $250,000 of gain. The larger $500,000 amount is tighter. You have to sell within two years of the death, and at the time of the death one of you had to own the house, both of you had to have lived in it for two of the past five years, and neither of you could have used this break on another home in the past two years.

Sometimes, and even then the yearly write off is small. A capital loss offsets your capital gains first. Past that, federal law lets you subtract only $3,000 a year from your other income, or $1,500 if you are married and file separately, and the rest carries forward to later years. A large loss does not come off this year's income.

Start with what a loss even means here. As the basis rule above explains, an inherited house generally starts at its value on the date of death, and that is the number a gain or loss is measured from. So a loss means selling for less than the date of death value, and that value has to be supported by something. Selling for less than you hoped to get is not what this rule measures.

Then whether a loss is deductible at all. A loss on a home you lived in is not. The instructions for Schedule D say a loss from the sale of a capital asset held for personal use is not deductible, and a vacation home counts as personal use.

An inherited house does not automatically land in that bucket. IRS Publication 559 covers the case where the estate owns the house and the person handling the estate sells it while the estate is open. It says that if the plan is to realize the value of the house through a sale, the house is a capital asset held for investment, and the gain or loss is a capital gain or loss that may be deductible. The same paragraph gives the other result. If a family member is allowed to live there rent free, or you move in, and the house is later sold without ever being put to business or investment use, a gain is still taxable but the loss is not deductible. What gets judged is how the house was held and used after the death, on the facts of your case.

That guidance is written for the estate. It does not cover an heir who took title and sold in their own name, which is the common situation in Arkansas. The rule behind it, section 165(c) of the tax code, lets a person deduct a loss only where the sale was part of a transaction entered into for profit. Do not assume the publication carries over. This is one to put in front of a CPA.

One more rule catches a lot of families. No loss is allowed on a sale between close relatives. That means a spouse, a parent or grandparent, a child or grandchild, and a brother or sister, including a half brother or half sister. It also covers a sale between the executor of an estate and someone who inherits from that estate, with a narrow exception for a sale that satisfies a bequest of a set dollar amount. One sibling buying out the others is a normal way to settle a house, and it is also the sale where the loss disappears.

Your costs to sell come off what you receive for the house before the gain or loss is figured. They make the number smaller. They do not make a deductible loss out of one that is not.

We buy houses. We are not tax advisers and this is not tax advice. A possible deduction is not a reason to take a lower price for your house. Take your closing statement, the estate paperwork, and any appraisal done around the date of death to a CPA or a tax attorney.

This is where sellers get surprised. The exclusion does not cover the part of your gain equal to depreciation you were allowed after May 6, 1997. That piece is reported as unrecaptured section 1250 gain and is taxed federally at a maximum rate of 25 percent, no matter how long you owned the house.

Time the house was not your main home can also shrink the exclusion. Periods after December 31, 2008 when the property was not the principal residence of you or your spouse count as nonqualified use, with carve-outs for the stretch after you move out within the five-year window, for qualified official extended duty, and for limited temporary absences. If the house was ever rented, take the numbers to a tax professional before you assume anything.

You may or may not receive a Form 1099-S for the sale. The closing company can skip filing one on a residence selling for $250,000 or less, or $500,000 where the certification includes an assurance that the seller is married, if it obtains a written certification from you. That certification is the closing company's to rely on, not the seller's to elect, and many closers file the form regardless.

The certification asks you to assure three things under penalty of perjury: that the home was your principal residence, that the full gain is excludable under section 121, and that there has been no period of nonqualified use after December 31, 2008. If you do receive a 1099-S, or if you cannot exclude all of your gain, report the sale on your return.

None of the tax rules. The federal test turns on your ownership and your use of the home, and federal law measures what you realized as the money and property you receive. Neither one asks who bought the house or how they paid. A different sale price changes your gain; it does not change the rules that apply to it.

What a cash sale changes is everything around the tax: no lender, no repairs, no showings. We buy as-is after one quick walkthrough, you get a guaranteed cash offer within 24 hours, we cover the typical closing costs, meaning the title work, and we close in less than 10 days, or on your timeline. What you owe on the gain is between you and your tax professional either way.