What you may owe Uncle Sam - Northville Real Estate
Taxes, and Capital Gains in Real Estate
A Special Real Estate Exemption for Capital Gains
Since 1997, up to $250,000 in capital gains for a single person and $500,000 for a married couple on the sale of a home is exempt from taxation if you meet the following criteria:
• You have lived in the home as your principal residence for two out of the last five years. • You have not sold or exchanged another home during the two years preceding the sale.
Also note that as of 2003, you also may qualify for this exemption if you meet what the IRS calls "unforeseen circumstances," such as job loss, divorce, or family medical emergency.
So if you bought the house in 2001 lived there for a year and moved out for a few years and then moved back in 2004. Then sold it in 2005 you are eligible to qualify for the special exemption if you have not sold another house and claimed the exemption. All you need to do is live there 2 out of the five years and you get a $250,000 capital gain exemption (if you are single and a $500,000 capital gain exemption if your are married).
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When you sell a stock, you owe taxes on your gain-the difference between what you paid for the stock and what you sold it for. The same is true with selling a home if you do not(or a second home), but there are some special considerations.
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Here is How to Calculate Gains on your Northville home. In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:
. Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing.
Add adjustments:
Cost of the purchase-including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.
• Cost of sale-including inspections, attorney's fee, real estate commissions, and money you spent to fix up your home just prior to sale.
• Cost of improvements-including room additions, deck, etc. Note here that improvements that you do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace.
The total of these costs are the adjusted cost basis of your home. Then subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain. I hope this explains some of the rules of the capital gain exemption for you. I recommend you take your closing papers and the HUD1 settlement statement to your tax preparer, CPA, or accountant. They will be able to figure out what you owe or do not owe Uncle Sam.
It does not matter whether it is Northville real estate or any home in the metro Detroit area these rules apply to all homes
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