Tax Question: Real estate...?

Question

I recently sold my home. The price I paid for the house was $162,000. I sold the home for $164,000. However, I had a second mortgate. Thus, I ended up having to pay $2000 at closing to cover the second mortgage principal remaining. Meaning the total payoff to "free" me from the property was more than what I sold it for. Is that considered a "capital loss?" How do I reflect this situation when filing my taxes this year?

Answer 1

The mortgage has nothing to do with the gain or loss on sale. If you take the selling expenses shown on the settlement sheet into account you probably have a loss on the sale. A loss on the sale of a personal residence is not deductible. I you have lived there for two out of the last five years and you have a gain you don't have to report it on your tax return. The first $250,000 of gain on sale of the residence is not taxable

Answer 2

Sorry, but that's not a capital loss. You actually have a gain of $2,000. The loan you paid off doesn't factor in to the calculations, it has no tax consequences.

Whether or not you owe any tax on the $2,000 gain depends upon how long you lived in the home as your principal residence. If it was at least 2 of the 5 years immediately prior to the sale, the gain is excludable from your income.

If you don't qualify for the exclusion but owned it at least for one full year, the gain will be taxed at the lower long-term capital gains rate of 10%. If you owned it less than one full year, the $2,000 is taxed at your marginal rate.

However, that assumes that your numbers are the net amounts. If you haven't added the buying and selling costs to the cost basis, do so now. You'll probaby show a small loss at that point. That will prevent any chance of tax on the "gain" but you don't get a deductible loss on losses from the sale of a personal residence. In this situation, the whole thing is a wash -- no tax but no benefit either.

Answer 3

The second mortgage is just another loan and has nothing to do with your Capital Gain. If you purchase another house, it doesnt matter what the gain was.