How to Calculate Capital Gains

By: Mary A. Kirby, 11/1/18

“Capital gains” is the profit that you make from the sale of your home. Calculating your capital gains is not as simple as deducting the price you paid for your home from the price you sold it at. There are several factors to take into consideration.

To find your capital gains, you must know 2 things:
1) The price you sold your home for, and
2) your adjusted cost basis.

CAPITAL GAINS FORMULA

Sale price minus adjusted cost basis
(PRICE SOLD AT) – (ADJUSTED COST BASIS) = CAPITAL GAINS

TO FIND YOUR ADJUSTED COST BASIS:

To calculate your adjusted cost basis, add all the following items:

  1. Original purchase price. This is the price you once paid for your home.
  2. Additional costs you paid in order to close escrow. Include escrow fees, home inspection fees, etc. Omit mortgage points.
  3. Cost of improvements you made (remodel or add-ons). Do not include maintenance or repair costs.
  4. Cost to sell (home improvement costs, inspections, disclosures, commission, repair costs, escrow fees, etc.).

CAPITAL GAINS EXEMPTION FOR HOME SELLERS

  • For singles: up to $250,000 of capital gain can be exempted from taxation.
  • For married couples: up to $500,000 of capital gain can be exempted from taxation.

Must meet both requirements:

  • In the last five years: you owned and lived in the home as your primary residence for at least two years.
  • In the two years before selling your home: you have not sold or exchange another home.

If you are short of the “two out of five years” requirement, you may still qualify under “unforeseen circumstances” like a unemployment, divorce, or family medical emergency.

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