Following are several links that you can utilize to answer questions and gain knowledge on many financial issues:
Capital Gains Taxes
Capital Gains Taxes
Ability to Exclude All or Part of the Gain from the Sale of a Personal Residence
An individual filer may exclude up to $250,000 of the gain on the sale of a personal residence. Joint filers are entitled to a $500,000 exclusion. The home must be owned and used as a personal residence for at least two of the last five years to qualify for the exclusion. There is no limit on the number of times homeowners may use this exclusion. The exclusion is available only once every two years, but there are several exceptions that could include:- divorce, legal separation or death of a spouse;
- becoming eligible for unemployment compensation;
- a change in employment that makes it impossible to pay the mortgage or basic living expenses;
- multiple births resulting from the same pregnancy;
- damage to the home from natural disaster, act of war; or terrorism; and
- condemnation, seizure, or involuntary conversion of the property, such as foreclosure.
Example: The Wilson’s bought their home in 1982 for $250,000. In 1992, they added a family room, a deck and a pool for a total of $50,000. They lived in the home until they sold it this year for $900,000. Selling costs were $60,000.
| Selling Price | $900,000 |
| Less selling expenses | -60,000 |
| Equals net selling price | $840,000 |
| Basis | |
| Original cost | $250,000 |
| Plus improvements | + 50,000 |
| Equals cost basis | $300,000 |
| Gain on sale ($840,000 - $300,000) | $540,000 |
| Less exclusion of sale of residence ($250,000 X 2) | -$500,000 |
| Taxable capital gain | $40,000 |
Information contained herein is subject to change at any time by the IRS and should be verified by your accountant or tax professional.
Source:Dearborn Real Estate Education
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