Courtesy of Robert Shaw, Broker Advocate Properties LLC, REALTOR®
Understanding Capital Gains in Real Estate
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 (or a second home), but there are some special considerations.
How to Calculate Gain
In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:
A Special Real Estate Exemption for Capital Gains
Since 1997, up to $250,000 in capital gains ($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 may also qualify for this exemption if you meet what the IRS calls “unforeseen circumstances” such as job loss, divorce, or family medical emergency.
Reprinted from REALTOR® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2003. All rights reserved.