The previous answer is correct and you must talk to an accountaant about this issue. However, generally you are taxed on the amount which is the difference between the selling price and the price you purchased the home for. LESS - real estate agent fees and home improvements. Hopefully you have all your receipts for any improvements you have made.
Hope that helps,
Linda J Sears
My question is why are you paying capital gains taxes?
The answer to your question is that you pay capital gains on the appreciation from your cost basis versus your net selling price. The mortgage loan has nothing to do with your capital gain. Your cost basis is the sum of the cost of the property plus tangible repairs and other expenses you have incurred while holding the property.
If you want advice on how to avoid paying capital gains taxes, you need to look at go zone real estate investments, which allow you to depreciate over 50% of the investment in the first year. Why is this good?
Lets consider an example, you purchase a project we're currently working on, duplexes in Biloxi which is booming right now. Purchase price $265,000, depreciation assuming 10% land value is $240,000 approx.
The IRS will allow you as an active investor to take 50% of that, or $120,000 and use it to offset your capital gain, as long as you meet active real estate investor classifications.
The Mississippi govt is also offering a small rental assistance program for $73,000 in cash incentives and forgivable loans. Contact us, we'll show you how you can avoid paying capital gains for zero money out of pocket.
1) is it owner occupied or not?
2) It is investment property?
3) If it is investment property, and you depreciated the property on your taxes, then you pay based on the difference of the sale minus depreciated amount left.
That is the easiest way to explain alot of IRS goobleegop. Talk to your CPA to clarify your number on paper
Real estate, capital gains and the IRS
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