Southwest Florida Real Estate
Understanding Capital Gains
When you sell a stock, bond, or mutual fund, you owe taxes on your gain - the difference between what you paid and what you sold them for. The same is true with selling a Southwest Florida home (or second home), but there are some special considerations you must take into account specific to real estate sales.
Calculating Capital Gains On Your Home Sale
In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. Obtaining the amount requires you to make adjustments including acquisition and improvements costs.
- Take the purchase price of your SW Florida home - this is the sale price, not the amount of money you actually contributed at closing.
- Add Adjustments to include:
- Cost of the Purchase - including transfer fees, attorney fees, inspections etc., but not mortgage costs or points, if applicable.
- Cost of Sale - including inspections, attorney’s fee, real estate commission, and money you spent to fix up your home just prior to its sale.
- Cost of Improvements - including room additions, a new deck, a pool etc. Note: Improvements do not include repairing or replacing something you already had, like a new roof or replacing a furnace.
- Cost of the Purchase - including transfer fees, attorney fees, inspections etc., but not mortgage costs or points, if applicable.
- The total of these items is the adjusted cost basis of your SW Florida home.
- Subtract this adjusted cost basis from the amount you received when selling your home.
This is the total amount of your capital gain on the sale of your SW Florida home. While the explanation is somewhat simplified, it is a easy way for you to start looking at this subject. In a real situation, you should consult with your CPA or Tax Advisor for a comprehensive review of your particular situation. And, as with all things relating to taxes, there are certain exemptions which may apply.
Special Real Estate Exemptions for Capital Gains
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home are 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. The two year residency test need not be continuous.
- You have not sold or exchanged another home during the two years preceding the sale.
- The method of holding title does not matter. Title can even be held in a revocable trust.
Also note, you may additionally qualify for this exemption if you meet what the IRS calls "unforeseen circumstances" such as job loss, divorce, or family medical emergency. Military and Foreign Service personal also get special considerations. Inquire with your tax advisor for specific details regarding these particular situations.
2007 Capital Gains Update
For more information on this real estate topic, please feel free to contact us directly. Our associates will be more than happy to assist you in answering any and all questions you may have.
And, please be sure to check out our other real estate information pages. They are full of useful information for buying or selling a Southwest Florida home.
Questions About Capital Gains
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