When selling your house, how do you figure the amount of tax you will owe?

Question

For example: I purchase a house for $100,000 and sell it for $200,000 six months later. Do I subtract improvements, realtor fees, etc. from the sale price and THEN figure taxes? If this gain is personal income, can you still subtract improvements, etc. or do you need to be an LLC or some other type of entity? Thanks.

Answer 1

If this was your primary residence then you may qualify for a pro-rata share of the exclusion based upon the reason for which you move such as a job related transfer, health related reason or other unforeseen circumstance. If you qualify you would take 1/4 of the exclusion of $500,000 for a married couple filing jointly, $250,000 for a single person. Section 121 of the tax code repealed the old 1040 rollover residence rule in 1997.

Now to your question if it still applies. You costs to sell, Realtor fees, etc. decrease your tax liability. Improvements increase your basis in the property sold and lower your tax liability. Owning real estate in an LLC does not change your tax liability.

Answer 2

If you have receipts for the repairs and you have lived in the house for two years there is not tax, up to 500,000 per couple or 250,000 for a single person.

Answer 3

IF you reinvest in another home equal to or more than the proceeds, no tax is due.

If you pocket the gain, deduct all improvements and selling fees.

The balance of the gain is added to your income and taxed at your current tax rate applicable to your total income.

Any tax due is payable on the next date for quarterly estimates.