How to calculate capital gains on a primary residence
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. To count as a selling expense, you must incur fix-up expenses—such as decorating, minor repairs, and other costs to prepare the property for sale—within 90 days of the sale. Include major repairs, replacements, and other capital improvements in the home’s cost basis (acquisition cost), regardless of when you made those expenditures.
