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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1779
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Please explain the capital gains tax. We recently sold a property

Resolved Question:

Please explain the capital gains tax. We recently sold a property and will need to know the tax ramifications. Are the costs of improvement to get the property ready to sell deductible?
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

thank you for using just answer

Anne :

is the home you're selling your primary residence?

Anne :

If this is not your personal residence, then you will pay capital gains tax (assuming that you owned the property for more than 1 year)on the difference between the selling price and the cost basis (which is the original purchase price PLUS the cost of the improvements less any depreciation if this home was used as a business such as a rental home for example)

Anne :

So, your cost basis is:

Anne :

the original purchase price

Anne :

plus any improvements you made during the time you owned the property

Anne :

Your capital gains tax is between 15% and 20% based on your marginal tax rate

Anne :

If you did not own the property for more than 1 year , then you follow the same process (selling price less cost basis) but you do not receive the capital gain tax treatment. In that case the profit from the sale would be taxed at your marginal tax rate, the same as your W2

Anne :

Finally, if this was your primary residence and you owned and lived in it for at least 2 year out of 5 years from the date of sell, then you may exclude up to $500,000 (per couple,) and you would not have any tax due on any of the gain.

Customer: need additional clarification on cost of improvements, what does that specifically cover? This was not a rental property, our daughter and her family lived there but we owned it.
Anne :

Did you report this as rental income, because that will have a bearing on this

Anne :

Some examples of capital improvements would be:

Anne :

addition to home

Anne :

landscaping

Customer: Never reported as rental income. We simply bought it as a place for our daughter to live in, but we made all repairs and replacements.
Anne :

remodeling any room (although the kitchen and the bathroom are the 2 I see the most)

Anne :

putting a new roof on

Anne :

If I have not mentioned a specific improvement you want to know about, please let me know

Customer: Garage door had to be replaced., all windows and sliding doors, all kitchen appliances were replaced due to poor quality used byy builder.
Anne :

Everything you just mentioned are considered improvements and can be added to the original cost for your basis

Anne :

Are you having problems staying in the chat room? because I can move this to a Q& A mode if that would be easier for you

Customer: So let me be sure that I understand, we can add all expenses related to improving the residence to the original price, then deduct the sale price from the purchase price and any difference is the amt. that we declare as capital gain, correct?
Anne :

Yes, that's correct

Anne :

You will also deduct the realtor fee

Customer: Okay, just needed to have this clearly set in my mind. I appreciate your expertise and patience with me. Thank you.
Anne :

You're most welcome

Anne :

Please fell free to put "for Anne" in your question line if I can help you in the future

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1779
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 2 other Tax Specialists are ready to help you
Expert:  Anne replied 1 year ago.
Thank you very much for your accept and the excellent rating and your generous bonus!

Please feel free to ask for me by name if I can help you in the future

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