Understanding Capital Gains in Real Estate

Understanding Capital Gains In Real Estate

Understanding Capital Gains In Real Estate

Understanding Capital Gains might be on your mind as tax time approaches. When you sell a home, you owe taxes on your gain—but there are some special considerations. Capital gains are based not on what you paid for the home, but on its adjusted cost basis.

•Take the purchase price of the home
•Add adjustments:

1. Cost of the purchase: including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.

2. Cost of sale: including inspections, attorney’s fee, real estate commission, and money you spent to fix up your home just prior to sale.

3. 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.

•The total of this is the adjusted cost basis of your home.
•Subtract this adjusted cost basis from the amount you sell your home for.

This is your capital gain.

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