Second residence capital gains?

Question

I am thinking of selling my second residence in California. I originally put $60,000 down and owe $140,000. It is now worth approx. $400,000.

I realize I have to pay capital gains, and understand the way around it.

My question is, do I have to pay capital gains on the whole $400,000 (or sale price) or just on the profit once I pay off the $140,000?

Thanks

Answer 1

If your second home was your primary home for 2 of the 5 years before the sale, you can exclude the gain. These need not be consecutive years.

If $60,000 was your down payment, it is not the number you need to compute your gain. It appears your FULL purchase price was $200,000. That would be your basis for computing your gain. The $400,000 sale price - the $200,000 purchase price = a $200,000 gain. Your actual gain would probably be less than this amount. The costs of selling (IE Realtor's commission) would reduce your proceeds. If you made any major improvements, they would increase you tax basis.

You may wish to consult IRS Publication 523 Selling Your Home

Answer 2

You would have to pay capital gains on the sales price minus you basis (your purchase price plus the price of any capital improvements made to the property). Your mortgage balance is irrelevant.

Think about it...if the mortgage balance mattered, you could refinance right now for $350,000 (or something like that) and then sell it.

Answer 3

What you owe on the property and the down payment have no bearing on the calculation of the gain. The gain is based on the sale price less the purchase price (less expenses and improvements).

Answer 4

Capital gain = selling price - original purchase price + major improvements to the property.

Answer 5

The loan balance and down payment have no bearing on the gain. Your gain will be the net proceeds from the sale less your adjusted cost basis. Your adjusted cost basis is the price you paid for the home + the cost of any improvements to it. If you rented it out, you'd have to deduct any depreciation allowed or allowable from your cost basis.

It's not possible to say what your gain would be from the numbers given.

Answer 6

You will owe capital gains tax only on the gain, not on the entire selling price.