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< About Selling Real Estate
When you sell a stock, you owe taxes on your gain — the difference between
what you paid for the stock and what you sold it for. The same holds true when
selling a home (or a second home), but there are some special considerations.
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:
- Purchase price: _______________________
The purchase price of the home is the sale price, not the amount of money you
actually contributed at closing.
- 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.
- Your home’s adjusted cost basis: _______________________
The total of your purchase price and adjustments is the adjusted cost basis
of your home.
- 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
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple)
on the sale of a home is exempt from taxation 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.
< About Selling Real Estate
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