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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am selling my house for $899,000 bought it 12 years ago for

Resolved Question:

I am selling my house for $899,000 bought it 12 years ago for $275,000 I got divorced 4 years ago and paid my ex-wife $250,000. I made improvements to the house of around $50,000 during the time i have owned it the realestate commision will be $45,000, I live in California what will my tax for federal and sate be % and dollars
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

Hello timmy,


Under current IRS regulations, if you sell your primary residence, you are allowed to exclude $250,000 from the gain on the sale (or $500,000 if you are married filing a joint return) and taxes would then be due on any gain that exceeds that exemption amount.


In order for a home to qualify as your primary residence, you must have owned the home for at least two years and you must have lived in the home for at least 2 of the past 5 years. Assuming you meet those requirements you can exclude $250,000 from the gain on the sale, assuming your are a single person.


The gain is calculated by taking your selling price less your basis. Your basis is the original price paid for the home plus the cost of any capital improvements made while you owned the home. The buyout money given to your spouse is not included as part of your basis in the home. So your basis would be $325,000 (your purchase price plus improvements). Your sale price of $899,000 less commissions of $45,000 leaves you with a net amount of $854,000 meaning you have a gain of $529,000. You can exclude $250,000 from that gain (or $500,000 if your are now remarried and your spouse has also lived in the home with you for 2 years). Whatever the excess is over your exclusion will be taxed at long term capital gains tax rates which is currently capped at 15%.


The amount of your gain used for federal purposes is the same amount you will owe California taxes on, and that rate will be at 9.3%.


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Thank you.




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