When you sell a stock, you owe taxes on your gain. You pay taxes on the difference between the price 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 special considerations:
Capital gains are not based on what you paid for the home, but on its adjusted cost basis. To calculate, please follow these steps:
1- Purchase price: _______________
The purchase price of the home, is the sale price, and not the amount of money you actually contributed at closing.
2- Total Adjustments: _______________
To calculate this, add the following:
Cost of the purchase - including transfer fees, attorney fees, and inspections, but not points you paid on your mortgage.
Cost of sale - including inspections, attorney fees, real estate commissions, and money you spent to fix up your home just prior to sale.
Cost of improvements - including room additions, decks, etc... please not here that improvements do not include repairing or replacing something already there, such as putting a new roof or buying a refrigerator or furnace.
3- Your home's adjusted cost basis _______________
The total amount of your purchase price minus your adjustments is the adjusted cost basis of your home.
4- Your Capital Gain _______________
Substract the adjusted cost basis from the amount your home sells for to get your capital gain.
Sinse 1997, up to $250,000 in capital gain ($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 two out of the last five years.
- You have not sold or exchanged another home during the two years preceding the sale.
- You meet what the IRS calls "unforeseen circumstances", such as a job loss, divorce, or family medical emergency.
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Sunday, June 14, 2009
Monday, March 10, 2008
Fed to Crackdown on Unfair Lending
In the months since House Financial Services Committee Chairman Barney Frank (D-Mass.) threatened to take away the central bank's rulemaking authority, Federal Reserve Chairman Ben Bernanke said it has been working on rules on unfair and deceptive lending practices that it plans to release this spring.
Frank believes this is a step in the right direction, but Bernanke provided no information about which practices would be singled out. As for the release date, he said the central bank wants to issue the rules when final credit card disclosure practices are rolled out in order to minimize the burdens placed on the banking industry regarding implementation.
Similar lending rules are under consideration by the Office of Thrift Supervision.
Source: American Banker, Steven Sloan (02/28/08)
Frank believes this is a step in the right direction, but Bernanke provided no information about which practices would be singled out. As for the release date, he said the central bank wants to issue the rules when final credit card disclosure practices are rolled out in order to minimize the burdens placed on the banking industry regarding implementation.
Similar lending rules are under consideration by the Office of Thrift Supervision.
Source: American Banker, Steven Sloan (02/28/08)
Monday, February 25, 2008
Housing Aid
Congress is eyeing more incentives as ways to address problems in the housing market:
A growing issue in this contentious election year. Top Democrats, who successfully backed the just-passed economic-stimulus bill, say they will push through a second measure that – among other things – would allow bankruptcy judges to alter the terms of certain mortgages.
Another measure under consideration is a tax break allowing companies with operating losses this year or the two previous years to apply them to past years for a refund. This idea is popular with home builders.
A third proposal would allot an additional $10 billion in bonding authority so housing-finance agencies can give more help to people refinancing subprime loans or first-time buyers. President Bush recently backed this idea.
Lawmakers are also considering $4 billion in block grants so localities with high foreclosure rates can buy and rehabilitate unoccupied property and $200 million for pre-foreclosure housing counselors.
A growing issue in this contentious election year. Top Democrats, who successfully backed the just-passed economic-stimulus bill, say they will push through a second measure that – among other things – would allow bankruptcy judges to alter the terms of certain mortgages.
Another measure under consideration is a tax break allowing companies with operating losses this year or the two previous years to apply them to past years for a refund. This idea is popular with home builders.
A third proposal would allot an additional $10 billion in bonding authority so housing-finance agencies can give more help to people refinancing subprime loans or first-time buyers. President Bush recently backed this idea.
Lawmakers are also considering $4 billion in block grants so localities with high foreclosure rates can buy and rehabilitate unoccupied property and $200 million for pre-foreclosure housing counselors.
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