<p><strong>Courtesy of Jimmie Van Hooser your REALTOR®  - 931-320-2142 </strong></p>
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<p><strong>Understanding Capital Gains in Real Estate</strong><br /> <br /> When you sell a stock, you owe taxes on your gain — the difference between what you paid for the stock and what you sold it for. The same holds true when selling a home (or a second home), but there are some special considerations.<br /> <br /> <strong>How to Calculate Gain</strong><br /> In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate, follow these steps:<br /> <br /> <strong>1. Purchase price: </strong>_______________________</p>
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<p>The purchase price of the home is the sale price, not the amount of money you actually contributed at closing. <br /> <br /></p>
<p><br /> <strong>2. Total adjustments: _</strong>______________________</p>
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<p>To calculate this, add the following:</p>
<ul>
<li>Cost of the purchase — including      transfer fees, attorney fees, and inspections, but not points you paid on      your mortgage. </li>
<li>Cost of sale — including      inspections, attorney fees, real estate commission, and money you spent to      fix up your home just prior to sale. </li>
<li>Cost of improvements — including      room additions, deck, etc. Note here that improvements do not include      repairing or replacing something already there, such as putting on a new      roof or buying a new furnace.</li>
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<p><br /> <strong>3. Your home’s adjusted cost basis: _</strong>______________________</p>
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<p>The total of your purchase price and adjustments is the adjusted cost basis of your home. <br /> <br /> <strong>4. Your capital gain:</strong> <strong> _</strong>______________________</p>
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<p>Subtract the adjusted cost basis from the amount your home sells for to get your capital gain.<br /> <br /> <br /></p>
<p><strong>A Special Real Estate Exemption for Capital Gains</strong><br /> Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:</p>
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<li>You have lived in the home as your principal residence for two out of the last five years. </li>
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<li>You have not sold or exchanged another home during the two years preceding the sale. </li>
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<li>You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.</li>
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