Capital Gains and Losses
Capital Gains Tax Questions? Ask a Tax Advisor for Answers ASAP
Hi, my name is ***** ***** I can help.
You cannot purchase a similar home in lieu of having capital gains as the IRC 1031 exchange, which I believe you may be thinking of, is only available for property that has been used in a trade or business, such as a rental real estate. Since you have not rented the property out, this would exclude you from doing a 1031 exchange.
You capital gain is the gross proceeds from the sale less your adjusted basis and selling expenses. Your beginning basis in the fair market value at the date of death of the person you inherited the property from, which I assume is $150K like you wrote. Your basis is increased for any improvements (though not repairs) that were made to the property since you have had it. Real estate taxes do not adjust your basis though you could have deducted them on Schedule A of your Form 1040 each year as an itemized deduction. So you net capital gain would be $550K minus $150K (starting basis) minus $174K (improvements) equals $226K in long-term capital gain. Any legal fees and/or broker commission would also reduce your capital gain.
I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions.