Saturday, March 21, 2009

Capital Gains Tax

Capital Gains and You
Congratulations! You now have a "sold" sign in your front yard. The sale of your home is complete and, hopefully, you netted a profit. If you did, be aware that you may be subject to capital gains tax. That simply means that you sold your home (a capital asset) and made a profit (gain), which could be subject to taxes.

The Taxpayer Relief Act of 1997 changed the tax laws concerning capital gains on primary residences. In years past, when you sold your home you could delay paying tax on your profit if you purchased another home within two years of selling. (There were also restrictions on the price of the home you had to buy.)

Today, you don't have to purchase another home to receive capital gains tax relief and you only pay taxes on any gains over $250,000 ($500,000, if filing jointly).

Here's how the IRS recommends figuring the gain (or loss) on the sale of your primary home:

1. Subtract your expenses from the selling price to obtain the realized amount.

Expenses typically include:

o Commissions,

o Advertising fees,

o Legal fees, and

o Loan charges, such as points.

2. Subtract the adjusted basis you made to the basis of your home from the realized amount to get the gain (or loss). (The basis is the amount you paid if you bought it or built it.)

According to the Internal Revenue Service (IRS), you do not have to report the sale of your home on your tax return unless:

You have a gain and you do not qualify to exclude all of it, or
You have a gain and choose not to exclude it.
Otherwise, you must report the gain on Form 1040, Schedule D.

As with any tax information, your personal situation (including such things as divorce) can have major tax implications. And since IRS tax rules change often, you'll want to be sure to consult with a qualified tax specialist.

Disclaimer: These are general guidelines and provided for information only. Other IRS rules may apply. Consult with your accountant, CPA or tax attorney for professional advice.

For more information on this topic or any other Real Estate matters feel free to e-mail JR at c21jrs72@aol.com

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