How to Calculate Gain on Sale of Personal Home
Category: Home Ownership
This check list is in the following categories:
Determine how much gain you need to report to the IRS after selling a personal home. This step-by-step checklist will show if your home sale has generated a gain or loss and whether that will affect your tax liability.
Each taxpayer is allowed a lifetime exemption of $250,000 in profit on the sale of personal property, including their main home. If you were married when the home was sold, the gain from that home is split between each spouse.
Married person filing together can have up to $500,000 in profit from a home sales.
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Start with the original purchase price of the home
Find the new cost basis by adding and subtracting the following expenses incurred during the time you owned your home.
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PLUS: Cost of all improvements to the building structure of the home
Improvements to the building structure include all materials and labor for new fixture, replacing equipment that are attached to the home, and renovations to the design of the home from the date the home was purchased.
This includes the cost of building additional structures on the property even though they are not attached. It also includes the cost of paving a driveway or installing a fence, but does not include landscaping or other
improvements to the land.
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PLUS: Closing costs from when the home was purchased
These costs include: fees for processing, title insurance, transfer tax, survey and underwriting fees, flood determination, recording fee, realtor commissions, etc.
Cost of appraisal and credit report are not included when determining the cost basis.
Payment for points (cost of lowing the interest rate, if desired), or loan origination fees, are also not included as they should have already been deducted with mortgage interest in the year the home was purchase.
If the home was refinanced, and you paid points which are still being amortized, the amount which has not yet been deducted is claimed with mortgage interest (on the Schedule A) in the year of sale.
Paying the sellers tax obligation increases the cost basis of your home. It is not claimed as an expense if you itemize deductions in that tax year.
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PLUS: Closing cost when the home was sold
Costs that were incurred to refinance the home are not included when figuring the basis.
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MINUS: Total amount claimed for depreciation (if you had a business in your home)
If you chose not to claim depreciation when a portion of your home was used for business, you still need to subtract from the cost basis the amount of depreciation you could have claimed.
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EQUALS: New cost basis. Compare to sale price to determine profit (gain) or loss.
If you have a gain, but it is less than the lifetime exemption amount for sale of a personal home (and you have not acquired enough profit from other home sales to put you over the allowable limit) you will not have to
pay tax on the gain. However, the profit needs to be reported to the IRS (using Schedule D) for informational purposes.
Personal residence also includes a boat or trailer if those vehicles are equipped with bedroom and bathroom facilities.