Will I have to pay Capital Gains taxes on the proceeds from the sale of my house?

Jul 23rd, 2012 | By | Category: Question of the Month

How to Calculate Gain: In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis.   To calculate, follow these steps:

1.  Purchase price: __________ The purchase price of the home is the sale price, not the amount of money you actually contributed at closing.

2.  Total adjustments: ____________ To calculate this, add the following:

  • Cost of the purchase – including transfer fees, attorney fees, and inspections, but not points you paid on your mortgage.
  • Cost of sale- including inspections, attorney fees, real estate commission, and money you spent to fix up your home just prior to sale.
  • Cost of improvements -including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace.

3.  Your home’s adjusted cost basis: __________ The total of your purchase price and adjustments is the adjusted cost basis of your home.

4.  Your capital gain: ____________ Subtract the adjusted cost basis from the amount your home sells for to get your capital gain.

A Special Real Estate Exemption for Capital Gains

There is currently a special real estate exemption for capital gains for up to $250,000 for single people and $500,000 for a married couple on the sale of a home if you meet the following criteria:

  • You have lived in the home as your principal residence for two out of the last five years.
  • You have not sold or exchanged another home during the two years preceding the sale.
  • You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.

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