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What Was Your Net Gain?
Your net gain (profit) or loss from the sale of your house is the difference between what you paid and what you received. But it's really not quite that simple. Consult real estate and tax professionals about current allowable tax deductions. To calculate your net taxable gain, you must first figure out the basis, or what you actually paid for the house.
$________________ YOUR ORIGINAL PURCHASE PRICE (down payment plus mortgage)
+________________ Plus fees connected with the purchase of the house (closing costs, etc.)
+________________ Plus cost of improvements (work out below)
+________________
+________________
=________________
=________________ Equals starting basis
–________________ Less casualty losses (for example, flood or fire)
=_____________ Equals ADJUSTED BASIS for calculating gain
Next, you need to figure out what you actually received, or the adjusted sale price of the house. Let's assume you sell your house for $130,000. That doesn't necessarily mean you receive $130,000. You may have a number of sale-related expenses that reduce that amount.
$________________ SALE PRICE FOR YOUR HOUSE
–________________ Less real estate commission
–________________ Less settlement costs
–________________ Less sale-related fix-up expense
=________________Equals ADJUSTED SALE PRICE of the house
–________________ Less ADJUSTED BASIS
=_____________ Taxable NET GAIN (or loss) on the sale
A final note: You must pay off the lender when you sell the house. This has no bearing on net taxable gain from the sale.
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