Charles Stallions Real Estate Services Inc.

Homeowner Strategies to Minimize Gain & Maximize Proceeds

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The gain on the sale of your home is determined by the price you sell the home, less selling expenses, less the price you paid for it, plus the capital improvements made during the time you owned the property.

IRS and accounting use the term "basis" to describe your cost in the home. It is a dynamic number that changes over time based on capital improvements that are made and capital losses that are incurred. What is called the tax basis may better be referred to as cost basis. It is the taxpayer’s cost in the property used to determine the tax on the gain of the sale.

The calculation begins with the purchase price of the property plus certain capitalized acquisition costs that were owed by the seller but were paid when purchased. Examples would include real estate taxes owed through the day before the sale date, back interest owed by the seller, and charges for repairs that were the seller’s responsibility. Capital improvements made to the property during ownership will increase the basis.

Capital improvements must either materially add value to the home, appreciably prolong the useful life of the property, or adapt a portion of the property to a new use. IRS Publication 523 has a section on figuring the gain or loss on a personal residence.

Some of the following may be considered capital improvements: landscaping, driveway, fence, swimming pool, new roof not covered by insurance, replacement of HVAC equipment and appliances. Maintenance and repairs to a person’s home is not a capital expenditure.

If the owner purchased a home for $350,000 and during that time spent $110,000 on qualified improvements, the cost basis of the property would be $460,000.

If cost recovery had been taken on the home when it was used as a rental property, even though it is now considered a principal residence, the total amount of the depreciation lowers the basis in the property.

Purchase Price $350,000
Plus Capital Improvements $110,000
Adjusted Basis $460,000
Sales Price $650,000
Less Selling Costs $31,000
Net Selling Price $619,000
Less Adjusted Basis $460,000
Capital Gain $159,000

In the example above, if the taxpayer owned and used the home as their principal residence for two out of the last five years and had not taken an exclusion on another home during the two years prior to the current sale and didn’t acquire the home through a 1031 exchange during the past five years, the gain qualifies for an exclusion and no tax paid. Single taxpayers and married taxpayers filing separately can exclude up to $250,000 of gain from the sale of a principal residence. Married taxpayers filing jointly can exclude up to $500,000 of gain from the sale.

Record keeping is important for you to substantiate the capital improvements when it comes time to calculate the gain. While IRS does allow you to reconstruct the expenses, it is much better to keep track of them in a contemporaneous manner with dates, receipts, and possibly, pictures for the more expensive improvements.

For more information, download our Homeowners Tax Guide.

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    Charles helped me find an incredible deal on a property by Woodham Middle School.  He dealt fairly and professionally during the transaction representing both sides.  It was a very smooth transaction.

    ak727

    I contacted Charles to help find a rental for a relative.  Charles knows Pensacola. I closed loans for Charles years ago and he was always professional and reliable.  My relative found a place on their own.  I will contact Charles again when searching for property.

    conhen2013

    Although I am not into a new home yet, Charles Stallions has been honest and has followed through. He tells it like it is and doesn’t waste my time. I feel hopeful that with his help I will find the right home

    Dean and Betty Bourne
    I’d like to take this opportunity to tell you all about the exceptional service and experience my wife and I had when selling our house.  I have know Charles for over six years and when it came time to sell my house I naturally went to him for assistance.  We met and discussed the value and what work needed to be done to get our best price.  That being completed we listed the house.  Within one week we had 3 showings (before it hit the MLS).  We got 2 offers from those showing and I made approximately $10,000 more than I expected.  Charles is a competent, trustworthy realtor, but more importantly he is a native of Pensacola and has an extensive network of other real estate agents, banks and closing agent, and trades people and service providers necessary to complete the sale or purchase of your property.  I highly recommend Charles Stallions Real Estate Services for you real estate needs.
    Delos E.Boardman

    I would like to express my appreciation for the 12 years of managing my rental property there in Pensacola as effectively and efficiently as all of you did. It was always a pleasure to hear from Michelle even when I knew it was about to cost me for a repair for whatever. You always delivered the news of an upcoming expense in the most pleasant way and made me feel better about what I was about to spend. Rianna also helped me sort out those expenses at tax time which made filing them accurately much easier.

    Charles, thanks for taking care of business all those years, keeping the property rented, and ultimately getting the place sold. I believe the only single occasion where there was any sort of issue actually was caused by the Post Office delivering a check over three weeks after it was sent.

    All things considered I feel my choice to use your services was a very good one.

    Thanks again for your professionalism and I wish you the best success in the future.

    Rich Henson