Do we owe tax on the sale of the condo?Profit from home sale?

Question

wo days ago, someone made an offer to buy our old condo (hallelujah!!!) and we accepted. Just signed the papers today. Inspection should be a breeze. Settlement is in 6 weeks. On paper we are making a nice profit, but when taking into account the many months the property sat empty, 6% realtors' commission, and the local 1% transfer tax, we are just getting back our 20% down payment and the equity we've built up through mortage payments.

I learned a few lessions. First, don't buy a new home until you've sold your old one. Second, pick your realtor carefully. And third, if your home fails to get ANY offers for months, it's priced too high.

Anyway, as I was glorying in our salvation from our cash-flow problems, a sobering question started nagging me: do we owe tax on the sale of the condo?

Answer 1

i'm not a tax expert, but it usually depends on how long you owed it...if it was your primary residence, and you owned it for more than two years, i dont believe you would owe taxes on the profit from the sale of your home...this is assuming that you live in the US

Answer 2

If the condo was your primary residence for the past two years, then chances are that you won't owe any tax. Any gain you have from the sale will be used to adjust the tax basis in your new home. For example: You originally paid $100,000 for the condo, and made permanent improvements for $20,000 (that means things like remodeling a bathroom, kitchen,etc.-not decorating items like paint). You now have a tax basis of $120,000. You sell the condo for $200,000, with 6% commission and 1% transfer tax. That gives you selling expenses of $14,000 (7% of $200,000). The net sale amount is $186,000 ($200,000 less $14,000 commission and tax). The total gain on the condo is $66,000 - the $186,000 net sale price less the tax basis of $120,000. If you paid $300,000 for your new home, the tax basis would be $234,000--$300,000 purchase price less the $66,000 gain on the condo. The real estate taxes you paid on the condo will be deducted on Schedule A, the same as you have always done. Be sure to check your condo closing papers to see if you paid any additional property taxes on there. Here in Cook County, Illinois, we have the most screwed up property tax system in the country. We're like a year behind on our assessment, so when we sell property, we have to pay the accrued property tax at closing.

Sorry to you had to learn some tough real estate lessons. There seems to be a lot of that going around lately!

Answer 3

I would check with a good tax advisor or cpa and perhaps even a lawyer