where to enter mortgage loan payoff

[francster]

When entering information to calculate the gain on the sale of primary residence there is no line item to enter mortgage loan pay off.   Please confirm that the way to adjust for the loan payoff amount is to subtract the loan payoff amount from the contract sale price to get the 'Sales Price to YOU' and enter that value in the "Sales Price" blank.

example:  Contract sale price of $1.5M minus the loan payoff of $300K, would mean the Sales Price to YOU is  $1.2M, and THAT is what goes in the form as "Sales Price".  

[pk]

@francster  for purposes of  gain/loss computation,  the mortgage  pay-off amount is NEVER  used.

Your Gain is  Sales Proceeds   LESS  Basis  in the property.

Sales Proceeds =  Sales Price LESS allowable Sales Expenses  ( generally things like title insurance costs, Sales commission, transfer Tax , sales preparation costs like repairs, paining etc. done only for the purpose of selling.

Basis    =  Acquistion  Price/ Cost  + Cost of any improvements over the holding period

The above is assuming that the  property was never used a income property ( i.e.  depreciable property ).

Does this make sense ?

[francster]

yes, I agree, but the issue is around the definition of Sales Price.  The definition I see in publication 523 is that the  sales price is 'everything you received for selling your home'.  From Pub523 'Worksheet 2; How to Figure Your Gain or Loss',  the forms look at this calculation beginning with the money you receive, so the Selling Price would be after the mortgage loan in deducted from the proceeds.

[DoninGA]

@francster The Sales Price is what the Buyer of the home paid for the home, no more, no less.

[VolvoGirl]

Selling price is the gross amount you got before paying off the mortgage.   You actually got it, it just went to something you owed.  It was for your benefit.  Selling price is not your net proceeds.

[francster]

Then if the mortgage payoff isn't deducted that amount would flow though to profit and capital gains tax would be due to it.   That doesn't sound right to pay tax on money you didn't receive.

[DoninGA]

This is how to calculate on gain or loss on the sale of the home, mortgage payoff is not included in the calculation -

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

Sales Expenses can include escrow fees, legal fees, real estate agent commissions, advertising costs, and even home staging fees.

[VolvoGirl]

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@francster wrote:

Then if the mortgage payoff isn't deducted that amount would flow though to profit and capital gains tax would be due to it.   That doesn't sound right to pay tax on money you didn't receive.

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But you did receive it.  You got it when you originally bought the house.  

[francster · Accepted solution]

Ok, I see now.  I missed that the total basis includes the amount you borrowed.  When you include borrowed funds in the basis you don't need to deduct the mortgage payoff as the basis includes that and Sales price in the full price.

[jimavera]

>[expenses of sales:] sales preparation costs like repairs, paining etc. done only for the purpose of selling.

NOT TRUE -- be careful.    "Fix up" repairs may not be deducted from the sales price as sales expenses because they do not "improve" the property but merely "maintain" it.   There are many articles about this on the Internet basically saying that Real Estate sites which claim fix-up repairs are deductible from sales proceeds are wrong.

See https://ttlc.intuit.com/community/tax-credits-deductions/discussion/if-i-sold-a-home-can-i-deduct-th...

[DawnC]

If you sold your home, you can deduct:

• Home improvement costs (permanent changes) as an adjustment to the basis of the home you sold (not the same as repairs and maintenance)
• Mortgage interest and real estate/property taxes charged at closing
• Selling expenses to reduce your gain on the sale side of the home

If you sold a home that you use as a rental or investment property at a loss, you might also be able to deduct it as a loss. @jimavera 

Home Repair Expenses

Home Improvement Costs