Phone: (623)693-6509
Fax: (623)218-9055
Understanding Capital Gains
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 is true with selling a home, but there are some special considerations.

How to Calculate Gain

In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:

1. Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing.

2. Add adjustments:

  • Cost of the purchase- including inspections, appraisals, title/escrow fees, etc. This does not include points you paid on your mortgage.
  • Cost of sale- including real estate commission, HOA transfer fees, title/escrow fees, etc. This also includes money you spent to fix up your home just prior to sale.
  • Cost of improvements- including room additions, swimming pool, etc. Note here that improvements do not include repairing or replacing something already there, such as replacing a broken water heater or repairing the roof.

3. The total of this is the adjusted cost basis of your home.

4. Subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain.

A Special Real Estate Exemption for Capital Gains

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:

  • You have lived in the home as your principal residence for 2 out of the last 5 years.
  • You have not sold or exchanged another home during the two years preceding the sale.
  • You qualify for exemption due to what the IRS calls “unforeseen circumstances” such as a job loss or family medical emergency.

Realty One Group
Realty One Group
7975 N. Hayden Road Suite 101A • Scottsdale, AZ 85258
Phone: (623)693-6509 • Fax: (623)218-9055

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