Capital gain on real estate?

Question

Do I get taxed on the difference between what I bought a property for (2 years ago) even though a large amount is going to the buyer as a credit? It is a rental. I am not making that much after fix up costs and credits back but do I get automaticly taxed?

Answer 1

You will pay tax on the "credit". Restructure the deal to avoid this.

Answer 2

Subtract your cost basis from the net proceeds of the sale to find your gain. That is the amount that is taxed.

Your cost basis is what you paid for it, plus the cost of any improvements, less any depreciation allowed or allowable. (Do not add the cost of repairs and maintenance, however.)

The net proceeds is the sales price less any selling expenses such as Realtor commissions, closing costs and minor fix-up costs.

If you allow a "credit" to the buyer (usually done to get a larger mortgage) that is considered part of the cash proceeds from the sale as it is presumed to have been paid to you (in cash or other valuable consideration) outside of closing. Forget the mortgage scam and play it straight!

Answer 3

Forget the credit. Figure out your basis; what you paid for it plus what you put into it to fix it up, remodel, yada. Then you need to know what you received for it. Example---you bought for 50,000 and put 40,000 into improvements for a total basis of 90,000. You sell it for 100,000; for a profit of 10,000; which is long term gain at a 5% tax in year 2007; $ 500.00 tax on the gain only.