Purch my home for $530,000, sold for $1.3 Mil. Lived in house 10 years and currently married. After the $500k exclusion can I reduce my capital gains further?

[tsfromny]

Current mtg is $400k.

[DoninGA]

Paying off a mortgage is not relevant when calculating the gain or loss on the sale of a home nor reducing the gain on the sale.

Gain or Loss = Sales Price minus Sales Expenses minus the Adjusted Basis of the home (Purchase Price plus the cost of improvements to the home prior to the sale)

Any gain on the sale after the exclusion will be taxed as a long term capital gain.

[tsfromny]

Thank you for your response.

If I take the profits from the house and buy another house in a different state would that exclude me from the capital gains?

[DoninGA]

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@tsfromny wrote:

Thank you for your response.

If I take the profits from the house and buy another house in a different state would that exclude me from the capital gains?

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No.  The option to defer the gains on the sale of a home by buying a new home at the same or higher price than the home that was sold was removed from the tax code in 1997.

[tsfromny]

So are you saying that if I purchased another home for less than $530K I could defer the capital gains?

[DoninGA]

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@tsfromny wrote:

So are you saying that if I purchased another home for less than $530K I could defer the capital gains?

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No not at all.  The gain on the sale cannot be deferred at all.  You will have to pay the capital gains on the sale of the home.

[tsfromny]

Not the answer I wanted to hear but thank you for the information.

[NCperson]

the capital gains is based on teh following:

1) the sales price of the house LESS

2) improvements you made to the house while you owned it LESS

3) the costs associated with selling the house - the big one is normally the commission LESSS

4) the original purchase price price of the house EQUALS

5) the gain on the house

from #5, you can further remove $500,000 as the joint exclusion as long as you BOTH lived in the home at least 2 of the last 5 years. 

from your post, you didn't mention #2 and #3 as opportunities to reduce the gain.

[tsfromny]

Thanks for the follow up, I did know about #2 but not #3, so that helps!

[Mike9241]

the purchase price can include certain closing costs such as title insurance

selling expenses can include brokers commission, transfer tax, home warranty and inspection fee.

terminology may differ depending on where you live.

certain expenses may not be used to reduce the gain such as the mortgage, home owner association fees,  points on mortgage.

neither list is all-inclusive.