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Question
What is my estimated long term capital gains on a home a sale in CA? Purchased in 2005 for $595, currently owe $220k, sale price $850k, Filing single, annual income $50k
Answer

Hey there! Home sales are tricky, and there are many variables to consider. I can’t give an exact answer, but here’s how you would calculate your gain:

Sale price - cost basis - expense of sale = capital gain or loss

To use your numbers, your sale price is $850,000 and your basis is $595,000.

Let’s say, over the years, you’ve made $20,000 in capital improvements to the home (repaired the roof, remodeled the kitchen, electrical improvements, etc). We’re talking large expenses that increase the value of the home.

Additionally, let’s assume you had $15,000 in sale expenses, such as commissions paid to a real estate agent, title transfers, and various other fees. (These will all be listed on your HUD statement at closing).

Your capital gain would be $220,000. 850,000 (sales price) - 615,000 (basis in the property after improvements) - 15,000 (closing costs) = 220,000.

The gain is subject to long-term capital gains rates, which is 15% on the first $445,000, so your capital gains tax would be around $30,000.

If the home you’re selling was your primary residence for two of the last five years, $250,000 of the gain is excludable, making your tax $0.

No answer given yet!

Sarah York, EA

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

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