capital tax gains question?

Question

bought house 374k 11 years ago
own 950k presently, made lot of improvements.

sell it for 1,200,000.00

what is my tax liability issues or gains i can claim????

we have taken out couple second mortgages and equity line credit,how does that effect this??

Answer 1

your cost basis is 374k + improvements. are you saying that you had $575k in improvements? if so, then your gain would be
1,200,000
- 950,000
250,000 gain

if you lived in your home for 2 out of the past 5 years, then you'd have a $250,000 gain exclusion ($500,000 if married). this means that $250,000 of your capital gain is excluded from being taxed. if the gain is over this exclusion amount, you would be taxable on the amount over $250,000 ($500,000 if married).

you would report any taxable gain on Schedule D of Form 1040, and the tax rate would be 15%.

Answer 2

You'll need to know the dollar value of the improvements. Add that to the cost to arrive at your basis for the property. Subtract the basis from the sales proceeds to arrive at the gain.

If you lived in the home for 2 of the 5 years immediately prior to the date of sale as your primary residence you can exclude all or part of the gain from taxation. The limits are $250,000 for a single filer and $500,000 for a couple filing a joint return.

If you have any gain remaining after subtracting the exclusion amount, that will be taxed as a long-term capital gain a the lower long-term capital gains rate. Normally that's 15% but there are exceptions to that.