Capital Gains Tax on Real Estate Sale

Forum|Forum|7 years ago
April 20, 2018
2 replies
0 views

I'm trying to understand how I calculate the capital gains tax on the sale of my home. I sold my home this year and I qualify for the $250,000 exemption. (I lived in the house for 3 out of the last 5 years). If I initially bought the house for $200k and now sold it for $650k, what amount do I report for capital gains? Is it roughly $650k-$200k-$250k=$200k? And would the capital gains tax be 15% of those $200K = $30k? Thank you very much.

Bees

Employee

Sorry but you can't take the section121 exemption(that 250k for a single owner) as a part of your cost basis. If you are eligible for the exclusion Turbotax will show that. If you used your home as a rental or had a home office that complicates things. Answer all the questions in order when you start.

You can include any selling/closing costs and the cost of improvements you made-say a new fence.

https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6tbMe3Dy

Some of your capital gains will be at a lower rate-the highest depends on your total income for the year. Let the software do the calculations for you.

Disclaimer: Not a tax professional. Information gathered from internet links. Anything dated in June 2019 was posted in prior years and is before the 2019 limits and changes.

Carl11_2

Employee

Basically, your gain is the amount over your cost basis. Your cost basis is determined by what you paid for the property, plus what you paid for any property improvements while you owned it. If depreciation was taken on the property or any part of the property used for a business of any type while you owned it, then that depreciation has to be recaptured in the year you sell it, and you will pay taxes on that recaptured depreciation.

Now understand that if you have depreciation on the property, then no matter what you will pay tax on that recaptured depreciation. It's not included in the "lived in 2 of last 5 years" capital gains exclusion rules.

Then, you get to deduct $250K of the gain from taxation if you meet the requirements. If married and your spouse also lived in the house for 2 of the last 5 years, and you two are filing a joint return, then double the exclusion to $500K.

The program will deal with this just fine. If the property was your primary residence in the year you sold it, then you'll report the sale under the Personal Income tab in the "Sale of Home (Gain or Loss)" section. Otherwise, if it was rental property at the time you sold it, then you'll report the sale in the Rental & Royalty Income (SCH E) section of the program. Both sections handle the capital gains exclusion just fine.

Arwind

I bought the house in 2012 used as a second home. Rented it for 6 years and want to live in it myself for two years and sell later in 2023. I am married but will file married filing separate for the year of the sale. What is my capital gain exemption amount?

DanielV01

Employee

@Arwind. That's more complicated. The sale of the house will still qualify for the exclusion if you live in it for at least 2 of 5 years. However, since you rented it previously, you will have to factor in depreciation recapture at the time of sale, and Married Filing Separately might make this a bit more complex as well, depending on your state of residence.

But let's give a scenario: You bought the home in 2012 for 200,000, and it goes up in value and you sell at 500,000, Married Filing Separate. Your gain realized gain is 300,000, but with the 250,000 exclusion your recognized capital gain will be 50,000. However, you also must claim the depreciation recapture from when you were renting the home (If for some reason you decided not to depreciate your home during that period, you still must claim depreciation recapture). For arguments sake let's say that you had 40,000 of depreciation in 6 years. You would be liable for capital gains tax on $50,000, and ordinary income tax on $40,000. If all of the gain qualifies for the exclusion, you will not have capital gains tax but will still have depreciation recapture tax.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"