where to enter mortgage loan payoff

Forum|Forum|1 year ago
February 20, 2025
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When entering information to calculate the gain on the sale of primary residence there is no line item to enter mortgage loan pay off. Please confirm that the way to adjust for the loan payoff amount is to subtract the loan payoff amount from the contract sale price to get the 'Sales Price to YOU' and enter that value in the "Sales Price" blank.

example: Contract sale price of $1.5M minus the loan payoff of $300K, would mean the Sales Price to YOU is $1.2M, and THAT is what goes in the form as "Sales Price".

Best answer by francster

@francster wrote:
Then if the mortgage payoff isn't deducted that amount would flow though to profit and capital gains tax would be due to it. That doesn't sound right to pay tax on money you didn't receive.

But you did receive it. You got it when you originally bought the house.

Ok, I see now. I missed that the total basis includes the amount you borrowed. When you include borrowed funds in the basis you don't need to deduct the mortgage payoff as the basis includes that and Sales price in the full price.

pk12_2

Employee

@francster for purposes of gain/loss computation, the mortgage pay-off amount is NEVER used.

Your Gain is Sales Proceeds LESS Basis in the property.

Sales Proceeds = Sales Price LESS allowable Sales Expenses ( generally things like title insurance costs, Sales commission, transfer Tax , sales preparation costs like repairs, paining etc. done only for the purpose of selling.

Basis = Acquistion Price/ Cost + Cost of any improvements over the holding period

The above is assuming that the property was never used a income property ( i.e. depreciable property ).

Does this make sense ?

francsterAuthor

yes, I agree, but the issue is around the definition of Sales Price. The definition I see in publication 523 is that the sales price is 'everything you received for selling your home'. From Pub523 'Worksheet 2; How to Figure Your Gain or Loss', the forms look at this calculation beginning with the money you receive, so the Selling Price would be after the mortgage loan in deducted from the proceeds.