We frequently get asked the question were selling our house and how much tax do we need to pay.
In order to calculate the gain on sale of a personal residence, please follow this formula:
- Cost to purchase the home
- Total closing costs paid when the home was purchased, not including adjustments for items such as real estate taxes paid.
- Cost of major renovations such as kitchens, bathrooms, basements and additions.
Major renovations do not include repairs and maintenance. If you’ve redone the kitchen or any room multiple times, the cost of each renovation counts.
- Expenses incurred to get the house ready to sell.
- Commissions paid for the sale of the home.
The total of the items above is the basis for your home. The difference between the selling price and your basis in the home is your gain on sale of the home.
A single person can exclude the first $250,000 and a married couple can exclude the first $500,000 of gain if the following tests are met.
- The seller must have used the home as a principal residence for at least two out of the five years prior to the sale. The two years do not have to be consecutive.
- The exclusion applies to only one sale every two years.
For married couples filing a joint return, in order to exclude up to $500,000 of gain, only one of the spouses must have owned the residence for at least two out of the 5 years and both spouses must have used the residence as their principle residence for at least two out of the five years prior to the sale.
For a divorced couple if the jointly-owned principal residence is sold and separate returns are filed, the house is divided into two. Each spouse can exclude $250,000 of their portion of the gain, provided the conditions for the exclusion are met.
If you have any questions please give us a call at 631-547-1040