Home Buying in Edison>Question Details

Vishesh, Home Buyer in 08820

Capital gain taxes

Asked by Vishesh, 08820 Wed Oct 10, 2007

is the capital gain tax applied on the differennce between selling price and buying price OR sellingprice and mortgage loan. I would assume that capital gain tax is applied on former one not the later on. please advice.

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6
Vishesh,

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
1 vote Thank Flag Link Wed Oct 10, 2007
Hi Vishesh,
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.
0 votes Thank Flag Link Wed Oct 10, 2007
It depends on many factors, as mentioned by the other answers, so you really need to sit down with a professional and let them help you calculate your tax liability. In general, you would pay tax on the difference between the sales price and the 'basis' in the property. The basis is the purchase price plus improvements. Remember, if it's your primary residence for 2 of the last 5 years there is a large exclusion. If it is investment property, you may consider what is called a 1031 exchange to avoid taxes. Good luck!
0 votes Thank Flag Link Wed Oct 10, 2007
It depends on the following:
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
Web Reference: http://www.iansellsnola.com
0 votes Thank Flag Link Wed Oct 10, 2007
For sure talk to your licensed tax preparer, deciphering what the IRS rules are and how each one affects the other is like deciphering Maya writings. To get you started here is a link on what IRS Says about your question
Real estate, capital gains and the IRS
http://www.irs.gov/publications/p544/ch01.html
When you get there scroll down towards the bottom of the page to start reading the publication
0 votes Thank Flag Link Wed Oct 10, 2007
Contact your accountant, or licensed tax preparer. This question cannot legally be answered by any but the said mentioned.
0 votes Thank Flag Link Wed Oct 10, 2007
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