When selling a stock or bond investment, you will owe taxes on any positive gain that you made. The same is true when you sell your home, but with some considerations.

How to Calculate Capital Gains

In real estate, capital gains are based on the adjusted cost of what you paid for the home. You may calculate the adjusted cost as follows:

Take your original actual purchase price of your home.

Add to it the following

1.      Cost of purchase including transfer fees, attorney fees, and inspections.

2.      Cost of sale –including inspections, attorney’s fees, real estate commissions, and money you spent on repairs and fixing up your home just prior to the sale.

3.      Cost of improvements- including any upgrades or improvements or room additions. This does not include maintenance items such as replacing worn carpets or replacing a roof that has already met its life expectancy, or replacing a worn or broken appliance such as a hot water tank or HVAC.

The total of all of this is the adjusted cost basis of your home.

Subtract this adjusted cost basis from the amount you sell your home for. This is the capital gain.

A Special Real Estate Exemption for Capital Gains

New tax code as of 1997, allows up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:

1.      You have lived in the home as your principal residence for two out of the last five years.

2.      You have not sold or exchanged another home during the two years preceding the sale.