Calculating Capital Gains

June 26, 2007
I've recently had some questions regarding capital gains. Present laws tax long term capital gains at 15%. However, the U.S. government encourages home ownership and has enacted laws which give a huge benefit to homeowners selling a principal residence. Individual sellers can exclude the first $250,000 in profit from being taxed; married couples filing jointly can exclude $500,000 in gain. This exclusionary benefit is presently available once every 2 years.Here is a simplified formula for calculating the gain on your principal residence.

Property was purchased for $250,000 and was sold for $800,000. What a bonanza, but possible if the property was held over several years and sold in a rising market. During the course of ownership and perhaps some fix-it projects to sharpen up the house for sale, $17,500 was spent. $55,000 was spent in selling expenses (real estate commission, escrow, title, etc.). Subtract the selling costs from the sale price: $800,000 - 55,000 = $745,000 adjusted sales price Now add the cost of major improvements to the orignal purchase price:$250,000 + 17,500 + $267,500 adjusted cost basis Subtract the adjusted cost basis from the adjusted selling price to determine the capital gain: $745,000 - $267,500 = $477,500.

Rather than having to pay $477,500 x 15% ($71,625) in capital gains taxes, you are allowed to totally exclude your gain from taxation. If you had sold stocks with the same kind of gain, you would have paid the $71.625. Not only were you able to enjoy a wonderful home, you were able to keep your financial gain.

Ask Shirley

May 24, 2007

I have just added this blog to my website which is www.shirleyharry.com. I am starting this blog in the hopes that I can be a resource for persons who have questions about real estatae in the Redlands Area. I have been an egent with Lois Lauer,dba asCentury 21 Lois Lauer Realty for the past 29 years. I am a research geek and am happy to search out answers.

I also write a blog for www.loislauer.com and hope that you will check it out as well.