How to maximize our home equity after a sale to minimze capital gain taxes?

[4jenns01]

We are trying to figure out our net gain after the sale of our home

Do you get to deduct the down payment you put down on the house you bought from the GAIN?

Can we do a 1031 exchange if we are over the 500K in profits to off set those gains and roll the equity into  a new home?

thank you

[xmasbaby0]

If your gain was more than  $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return.  Whether you re-invested the gain in to another house is irrelevant.    The tax law that allowed you to avoid capital gains by purchasing another home with the proceeds of the sale of the "old" house changed in 1997.

If you  have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

• If you are using online TT, you need Premium software to report the 1099-S

[Vanessa A]

No.  You do not get to separately deduct the down payment, however it is part of the cost basis.  You would include the entire purchase price which includes the down payment and the mortgage as the cost basis and any major repairs or improvements such as a kitchen remodel, new roof or addition to the home.

No, you cannot do a 1031 exchange on a personal residence. 

[NCperson]

@4jenns01 let me state this in an easier way.

The mortgage (whether HELOC for first mortgage) nor the down payment has anything to do with the capital gain calculation. 

The capital gain = sales price - sales expenses (think commission as the big one) - original cost basis - improvements.  

If you lived and owned the home for 2 of the 5 years looking back from the sales date, the first $500,000 (filing JOINT) / $250,000 (all other filing status') of capital gains  is  eliminated.

you can't do a 1031 exchange on a personal residence and buying another home with the proceeds does not affect the result.