Question about capital gains

14 years ago

Scenario:

Bought new townhouse in November for $341,000. Between closing costs, down payment, FHA fee, etc. I put about $16,000 down.

Then, I invested $5500 in appliances (it had none) and $500 in window treatments.

I decided to move to a new location. I sold the unit for $375,000. It closes Feb 18th.

After broker fees, taxes, etc. I broke even and will be getting $22,000 back.

Are the down payment, broker fees, appliances, etc. expenses and will I not have to pay capital gains or income tax on this? It would be pretty silly if I had to as I did not make a profit of any kind.

This would be considered my primary residence for the approx 3 months I owned it before selling.

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Comments (7)

brickeyee
14 years ago
The cost of improvements are added to the cost basis of the property when computing profit.

Selling expenses are also deductible against the profit by reducing the gain.

The IRS still has a 'selling your home' summary that shows what and how to adjust the cost basis and sale price to determine if any profit was made.
bethesdamadman
14 years ago
The amount of the downpayment is irrelevant when determining capital gains. You simply deduct the cost basis (purchase price + improvements + buying expenses such as loan fees, etc) from the net sales price (sales price minus any fixup costs, realtor fees, etc.).

If you end up with a postive number, you pay capital gains on that amount. If it is negative, you don't.
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The basic answer is this: Assuming this is your main home, you can exclude up to 250k for a single taxpayer (or 500k for married filing joint) assuming you have own the property for more than 2 years and have lived in it claiming it as your main residency. Since you have live in it less than 2 years you will need to calculate your gain on the sale of your property: Original Cost of Home (Basis) Plus: All Realtor, FSBO, closing fees, etc to buy the home that you paid Plus: All Realtor, FSBO, closing fees, etc to sell the home that you paid Plus: Cost of all improvements made to the home. Minus: Total deprecation taken on the home (only if you depreciated your home for a business) All of this will equal your new basis in the home. Then take your sale price of your home minus your new basis to find out if you have any gain you will need to report on you Schedule D. Internal Revenue Service Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service, we must inform you that the advice we provide in this correspondence is not intended or written to be used, and cannot be used, by you or any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or any applicable state or local tax law, or for the purpose of promoting, marketing, or recommending any tax-related matters addressed within to another party. You are not prohibited from sharing this advice with third parties. However, the third parties should seek their own advice based on their particular facts and circumstances from an independent tax advisor.
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mkiv808
Original Author
14 years ago
OK, in that case I probably still haven't shown a profit.

How are seller incentives handled? IE: I bought it at $341k, the closing costs (with FHA fee) were $16,000, but the seller paid $10,000 of those. Do I compute $16,000 in closing costs, or $6,000?
sweeby
14 years ago
If the seller paid $10,000 of your closing costs, then your 'real' purchase costs were $341,000 - $10,000 plus your closing costs excluding down payment and pre-paids such as property taxes.

In case there's some confusion, 'Closing Costs' are fees and expenses related to the purchase -- title search, survey, etc. These are completely different from a 'Down Payment' which is an investment directly into your home equity, or pre-paid expenses where the title company collects your property taxes up front. Even though you fork over your down payment and pre-paids at closing, the numbers aren't related.

Definitely read the IRS publication and get help with it if you need to.
annkathryn
14 years ago
If this was your primary residence, the first $250,000 of capital gains on a house sale ($500,000 if you're married) are tax free. You owe no tax on the sale of your house. Don't even worry about it.
annkathryn
14 years ago
Oops sorry, just read the 3 month part; you can avoid capital gains taxes if your move is due to special circumstances. Your gain is pro-rated based on your occupancy period.

The $250,000/$500,000 capital gains exclusion I referenced above is for people who have used the house as a primary residence for 2 of the preceding 5 years.

Still, your net sales price ($375,000 minus broker fees, fix-up costs and other allowed net closing costs) minus your cost basis ($341,000 + $6000 in improvements + net closing costs) should mean a very low gain if anything at all.
brickeyee
14 years ago
"you can avoid capital gains taxes if your move is due to special circumstances."

The OP will still have to compute the capital gains to even determine if there are any.

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Question about capital gains

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brickeyee

bethesdamadman

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Question about capital gains

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brickeyee

bethesdamadman

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mkiv808Original Author

sweeby

annkathryn

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brickeyee

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