I’m a single guy selling a house I’ve lived in for 11 years. If I’m reading Google right, it sounds like I need to pay capital gains on profit over 250k? If this is the case, should I get my receipts together for home improvements over the years? I’ve spent 100k on this house easily over the years.
I purchased the house for 242K and will hopefully sell for about 600k. I do NOT plan to roll the money into a new house but I intend to buy a larger RV with the proceeds. Can I consider that rolling profit into a house?
Just my opinion, but you should be talking to a tax professional. If you want online advice, I would post this on the new Clark Howard message board and tag poster clydewolf. He is very knowledgeable on tax issues and is posting there.
Capital gains are net selling price minus tax basis in the home. Net selling price is sales price less cost of sale. Those costs are generally realtor commission plus any the cost of sale (such as staging, professional photos, food for open house, etc.).
Your tax basis is what you paid, including any costs to purchase, plus any improvements. Improvements can be broadly defined as permanent alterations to the house. That would include remodeling, replacements of any attached appurtenances (such as furnace, a/c, roof, carpeting, water heaters, built in appliances, appliances that came with the house that are selling with the house or their replacements, etc. I think some maintenance items done 90 days prior to sale, such as painting, are also part of the basis.
Capital gains up to $250K (single) are exempt from taxation. It doesn’t matter what you do with the money (the reinvestment in another house requirement went away in 1997).
Hopefully you have support. These improvements will increase your adjusted basis and lower your total taxable gains. Additions, roof, siding, patio, pool, landscaping, HVAC, etc will all increase your basis. Keep in mind if you replaced the carpet in 1990 and subsequently removed it and put down hardwood floors, the carpet would not count but the hardwood floors would. See page 9 of publication 523 that jimtoo posted.
You are going to need receipts or documentation in the event you are audited.
I can think of 100k without getting a headache, covered patio at 18k, two new a/c units, full exterior paint (over brick, was a big job), interior paint, granite install in kitchen, installed a second master at 50k, doing a master bathroom reno currently that will be about 25k. Hell, I just had tree removal and trimming that cost 2k. Getting all the receipts will be tricky but I’ll get it done.
Minus real estate and closing fees, guess I’ll need to pay 15% gains tax on whatever is over 250k plus expenses.
I don’t know if the rules have changed since we sold our former house in 1996. At that time the only expenses that could be considered for adjusting the cost basis were actual capital improvements and not just replacements. For example, if someone replaced a 30 gallon water heater with a new 30 gallon water heater that would have been considered to be maintenance. However, if they replaced it with a 50 gallon water heater that would have been considered to be a capital improvement.
However, since most people tend to upgrade when they need to replace something this might be a moot point.