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How to calculate capital gains on a primary residence

ask phyllis a real estate question

Dear Phyllis,

I look forward to your weekly column. My husband and I are thinking of selling our home and moving to Nevada. He has a civil service pension and we could have a much higher standard of living there. Can you explain how to calculate capital gains on a primary residence?

Waiting to Retire

Dear Waiting,

Your timing is excellent. We are experiencing a severe shortage of listings and in most of Southern California home buyers are competing for desirable homes. As a real estate agent, I can’t offer tax advice and suggest you run your question by your accountant or CPA. I can however provide you with some general information regarding calculating capital gains on a primary residence :

When the home is the primary residence, the homeowner is allowed a $250,000 exclusion. Or $500,000 for a married couple filing a joint return. To qualify one must have lived in their home for two out of the last five years. One can also deduct their selling expenses (brokerage fee, escrow, title) against the taxable gain from the sale.

For example, assume you purchased your home for $300,000 (acquisition value) and you sell for $950,000

$950,000 – $500,000 (married couple exclusion) = $450,000 – $61,000 (selling expense) = $389,000 – 300,000.00 (acquisition value) = $89,000 (subject to capital gains).

According to John Sadd, CPA at The Accountancy certain “fix up- expenses” can also be deducted. “Fix-up expenses” such as decorating, minor repairs, or other general expenses incurred to prepare the property for sale must be incurred within 90 days of the sale to be included as a selling expense. Major expenditures for repairs replacements or other capital expenditures made at any time should be included as part of the cost of the home (acquisition cost).

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