Question about capital gains

16 years ago

Scenario:

Bought new townhouse in November for $341,000. Between closing costs, down payment, FHA fee, etc. I put about $16,000 down.

Then, I invested $5500 in appliances (it had none) and $500 in window treatments.

I decided to move to a new location. I sold the unit for $375,000. It closes Feb 18th.

After broker fees, taxes, etc. I broke even and will be getting $22,000 back.

Are the down payment, broker fees, appliances, etc. expenses and will I not have to pay capital gains or income tax on this? It would be pretty silly if I had to as I did not make a profit of any kind.

This would be considered my primary residence for the approx 3 months I owned it before selling.

Sort by:Oldest

Comments (7)

brickeyee
16 years ago
The cost of improvements are added to the cost basis of the property when computing profit.

Selling expenses are also deductible against the profit by reducing the gain.

The IRS still has a 'selling your home' summary that shows what and how to adjust the cost basis and sale price to determine if any profit was made.
bethesdamadman
16 years ago
The amount of the downpayment is irrelevant when determining capital gains. You simply deduct the cost basis (purchase price + improvements + buying expenses such as loan fees, etc) from the net sales price (sales price minus any fixup costs, realtor fees, etc.).

If you end up with a postive number, you pay capital gains on that amount. If it is negative, you don't.
Related Professionals
Dothan General Contractors · Tampa General Contractors · Elizabethtown General Contractors · Johnson City General Contractors · Chico General Contractors · Idaho Falls General Contractors · Sarnia General Contractors · Frederick Architects & Building Designers · Winston-Salem Architects & Building Designers · Roanoke Architects & Building Designers · New London Architects & Building Designers · Billings Architects & Building Designers · Virginia Beach Kitchen Remodelers · Gary Kitchen Remodelers · Bennington Kitchen Remodelers
mkiv808
Original Author
16 years ago
OK, in that case I probably still haven't shown a profit.

How are seller incentives handled? IE: I bought it at $341k, the closing costs (with FHA fee) were $16,000, but the seller paid $10,000 of those. Do I compute $16,000 in closing costs, or $6,000?
sweeby
16 years ago
If the seller paid $10,000 of your closing costs, then your 'real' purchase costs were $341,000 - $10,000 plus your closing costs excluding down payment and pre-paids such as property taxes.

In case there's some confusion, 'Closing Costs' are fees and expenses related to the purchase -- title search, survey, etc. These are completely different from a 'Down Payment' which is an investment directly into your home equity, or pre-paid expenses where the title company collects your property taxes up front. Even though you fork over your down payment and pre-paids at closing, the numbers aren't related.

Definitely read the IRS publication and get help with it if you need to.
annkathryn
16 years ago
If this was your primary residence, the first $250,000 of capital gains on a house sale ($500,000 if you're married) are tax free. You owe no tax on the sale of your house. Don't even worry about it.
annkathryn
16 years ago
Oops sorry, just read the 3 month part; you can avoid capital gains taxes if your move is due to special circumstances. Your gain is pro-rated based on your occupancy period.

The $250,000/$500,000 capital gains exclusion I referenced above is for people who have used the house as a primary residence for 2 of the preceding 5 years.

Still, your net sales price ($375,000 minus broker fees, fix-up costs and other allowed net closing costs) minus your cost basis ($341,000 + $6000 in improvements + net closing costs) should mean a very low gain if anything at all.
brickeyee
16 years ago
"you can avoid capital gains taxes if your move is due to special circumstances."

The OP will still have to compute the capital gains to even determine if there are any.