Home Buying in San Jose>Question Details

pilajunk, Both Buyer and Seller in 95135

What are the tax implications of selling your home for more than what you paid for it?

Asked by pilajunk, 95135 Mon Oct 1, 2012

I paid about 650K for my home 10 years ago and I spent about 50K over that period adding value to the home (copper pipes, new roof, new carpets, new appliances etc.). People think I can get about 735K for the house, but all the commissions, escrow costs etc will eat into that (-50K) leaving me with less than 700K. Do I still need to pay tax on the gains (735-650) or do they deduct my costs ?

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Juliana Lee,MBA’s answer
Maintenance does not build your tax basis. Improvements can.

For instance if your copper pipes were put in to replace leaking pipes, that would likely be considered maintenance. If your copper pipes were put in immediately before selling the house, that could possibly be considered an improvement.

IRS Publication 523 can give you ideas about what to look for:
http://www.irs.gov/publications/p523/ar02.html#en_US_2010_pu…

The costs of selling the home are generally deductible from the gross sales price. Talk to a tax consultant to understand what is deductible and what records you need to have.

Juliana Lee
650-857-1000
Top 3 agent nationwide at Keller Williams
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Web Reference: http://www.julianalee.com
0 votes Thank Flag Link Wed Oct 3, 2012
Good answers below - this is one more vote for "Talk to an accountant."
0 votes Thank Flag Link Wed Oct 3, 2012
If this lived in the house, most probably you don't have to pay any tax on the sale. However, talk to a tax professional to evaluate your situation.
Web Reference: http://talisrealestate.com
0 votes Thank Flag Link Mon Oct 1, 2012
Hi pilajunk,

Is the property your primary residence? If it is and you have live there 2 years out of the last five years then you might qualify for a $250,000 profit exclusion. If you are married, that exclusion can be up to $500,000 ($250,000 each). You are disqualified from the exclusion if you took the mentioned profit exclusion within the last 2 years.

A couple other things to think about:

Does the property to qualify as your primary?
* it has to be near your place of employment
* address is used for tax returns
* close to services you used

Did you depreciate the property in anyway?
ie... home office use

As stated we aren't tax experts, I just help a client so of this stuff is fresh in my brain. Consulting with a tax adviser will help. Your taxes might be easy or real difficult. In addition to the profit (if any) you are making, you have to consider your income, your investments, etc.

Thuan
0 votes Thank Flag Link Mon Oct 1, 2012
This is a question best left to your CPA. All the improvements that you have made go to your "Cost Base" of your purchase of this home. Make sure the folks who are giving the Sales price are only using comps that are within 1 mile (or less) radius of your property with the size which is within 100-300 sqft of your home. As for age of these comps, they need to be within 5 years of your home's age.

In short, you need to talk to your CPA about your tax implication of your sale.
0 votes Thank Flag Link Mon Oct 1, 2012
Hello,

We the realtors can not give tax advice, in addition to the information below, here is a link to IRS site with further details on sale of your home (tax implications).

http://www.irs.gov/taxtopics/tc701.html

Regards,
Monica Goyal
408-476-0675
0 votes Thank Flag Link Mon Oct 1, 2012
It is best to discuss tax implications with a tax advisor as real estate agents can only give real estate advice.

One of California's general rules have been if you lived in the house for 2 of the previous 5 years as your own home then each spouse would have a $250,000 break.

Example,

You Paid $650,000 from $735,000 sale the difference is less than $250,000 the Escrow Holder would not be required to with hold taxes at the time of sale if you lived in the house as your primary home.

As for other tax deductions, etc, that is up to your Tax Advisor.

Have an amazing day!
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Mon Oct 1, 2012
Good answer by Lance below. Either way I would just talk to your accountant as that will clear up any and all issues.
Web Reference: http://BayAreaConnect.com
0 votes Thank Flag Link Mon Oct 1, 2012
Depends on whether or not you've lived there for 2 of the last 5 years and if you are married. If it's an investment property check with your accountant
0 votes Thank Flag Link Mon Oct 1, 2012
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