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 is true with selling a home (or a second home), but there are some special considerations.
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:
Also note that as of 2003, you also may qualify for this exemption if you meet what the IRS calls ʺunforeseen circumstances,ʺ such as job loss, divorce, or family medical emergency.
In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:
Cost of the purchase – including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.
Cost of sale‐including inspections, attorney ́s fee, 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.
Contact your attorney or tax advisor for more information.
Reprinted from REALTOR® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2005. All rights reserved.
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