Capital gains tax on the sale of a real property is not an easy topic for many people to understand. This type of tax occurs when real property is sold and a profit is realized. If you sell the home in which you reside, there is a chance you can take advantage of the tax break provided to homeowners who have lived in the property and met certain qualifications.
Figure out what the cost basis is on the real property you bought. Determine the amount that you paid for the property. Factor in any additional costs that accompanied the purchase of this piece of real estate including home inspection costs, attorney fees and the costs to hire a licensed realtor. Remember that any property you obtained as a result of a loved one passing away or that was given as a gift has no price.
Calculate any additional costs. If you had additional costs such as a tax payment you made at the time you bought the property, repair costs or improvements you made to the structure, you can add these figures to your cost basis. Keep in mind you must also factor in any losses sustained as a result of depreciation.
Determine the profits you realized when you resold the real estate. Obtain this figure by figuring out the price at which the home sold minus any additional expenses such as costs to hire a mold inspector, real estate broker costs and newspaper advertising fees. Use a calculator and write your calculations down so you do not lose the figures.
Factor in any breaks you are due to receive. If you are an unmarried individual who sells a property you have bought for a profit, you do not have to pay taxes on up to $250,000 of the sales proceeds. Married couples can earn up to $500,000 on the sale of real property and not pay taxes.
Figure out the amount of capital gains you are due by taking away the adjusted cost basis from the adjusted total, which was obtained when the real property was resold. Complete the section of the IRS tax form Schedule D. If you are not sure how to fill in all of the data correctly, hire a tax professional to assist you with the process.