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Perplexed About Gain |
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Dear Edith, I am perplexed. Different people have said different things about me paying capital gains. Like a friend said, "If it's your personal residence, you don't have to pay taxes on it when you sell it!!"
I am 60. I was divorced in 1980. I bought this house in 1982 for $95,000. I now have it on the market for $485,000. I pretty much have lived hand to mouth since raising my son here, but over the last 24 years have been able to upgrade it with maybe $70,000 worth of basic improvements.
I never made a lot of money working self-employed ($18,000 a year) as a copywriter or pet sitter. Actually this last year I made nothing, because I am packing up the house instead of working. I inherited some money from my father and have been using that to pay bills.
I am just confused about capital gains. I bought this old house cause I love it, I can't believe it's worth this much and I actually have to pay taxes on it! Thank you for helping me to understand this situation |
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You qualify to take the first $250,000 capital gain on the sale of your home free of federal tax. Your cost basis for the house includes just about everything you did to it that wasn't repairs, maintenance or redecorating. You must have had a complete new roof, perhaps two. Even permanent landscaping counts, or putting up a towel rack. The IRS says if you don't have receipts you're entitled to estimate as best you can.
After you subtract from the sale price your cost basis, legal costs of selling, and commissions, what’s left is subject to capital gains tax. If you're in a really low tax bracket, some of your gain would be taxed at only 10 percent federal, anything beyond that at no more than 15 percent. State tax is lower.
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Edith
Originally published on July 6, 2006 |
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