Understanding Capital Gains:

Understanding Capital Gains:

Capital Gains are calculated as the difference between what you paid for something (Stock or Real Estate for example) and what you sold it for.

How to Calculate Gain

(+) PURCHASE PRICE - Price paid for property
(+) COST OF PURCHASE - Transfer fees,
 attorney fees, inspections
(+) COST OF SALE - Repairs, commissions,
 attorney fees, inspections
(+) COST OF IMPROVEMENT - Room additions, deck,
 for example, though not replacing existing
(=) ADJUSTED COST BASIS OF YOUR HOME
(-) AMOUNT YOU SELL YOUR HOME
(=) CAPITAL GAIN

A Special Real Estate Exemption for Capital Gains

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:
* 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.

NOTE:  As of 2003, you may also qualify for this exemption if you meet what the IRS calls "unforeseen circumstances" such as job loss, divorce, or family medical emergency.

Understanding Appraisal Value

For buying and selling purposes, appraisals are usually based on the market value - what the property could probably be sold for in the market today.  This value is not a constant number and changes with market conditions which can often alter the appraised value. Lenders usually use either the appraised value or the sale price, whichever is less, to determine the amount of the mortgage they will offer to a borrower.

Always consult your Tax Advisor or CPA/CMA/CA regarding current tax law.