Housing and Real Estate

Capital gains refer to gains on the cost of ownership, plus any substantial adjustment to their value. That is, not necessarily the gain is measured strictly according to the purchase price.

You can include as part of your cost basis costs to sell, like the commission to the realtor, and the costs to prepare the property for sale as new paint or focoss, for example.

Also included is the cost of permanent improvements made to housing. Maybe you added a room or a bathroom. This increases the value of the house, but spending was not included as income.

If you lived in a house many years and much has improved or expanded, its value can be quite high, but its low purchase price. Say you bought a house 20 years ago is now worth $ 50,000 and 400,000. In principle, you have to pay tax on $ 100,000 if you’re single, but if you can prove that you have made significant improvements, reduce or even eliminate the tax.  Repairs do not have to adjust the cost of basic housing for only returned to normal operation.

That is, if it breaks the water heater and fix it, that’s not an improvement. However, if you replaced it with a larger and more efficient, that could be considered as an improvement.

Any gain on these limits is subject to tax on capital gains (capital gains tax). This benefit can be used for 24 months, but you must meet certain requirements to avoid the tax. The most important requirement to qualify for a tax exclusion is to have lived in the house at least two years of the five years preceding the sale.

The two years can be measured continuously or a total of 730 days. Short absences such as vacation, count as time lived in the residence.

If a couple want to get the $ 500,000 exclusion and deliver a joint return, both must meet the requirement of two-year stay, but only requires one of the two has the name on the documents of ownership.

If owners are not married, everyone is entitled to the exclusion by $ 250,000 and each must appear on the ownership document, in addition to meeting the requirement of two years of residence.

You can get a partial exclusion if you have lived less than two years before selling the house, if the reason for selling is due to job relocation, health problems, divorce or separation, death of an owner or a relative who lives in the house of the same, layoffs, underemployment or damage of terrorism, among other things. A tax advisor can give you more details about the new rules for partial exemption.

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