When you decide to sell your home, a lot more goes into the transaction than is probably originally realized. Most sellers focus on the tangible aspects of real estate transactions. These can include dealing with the real estate agent, the home buyer and sometimes an attorney. It also includes any profit that might be made from the home sale.
There are probably a lot more things at the forefront of your mind when you're selling a home than taxes. You should factor them in just the same, since they are an important element. Gain or loss, taxes will be involved in your real estate transaction. That's where the cost basis calculation is needed.
Cost basis is a United States tax law term. The basis is considered to be the original price you paid for the home. The cost portion is where factors such as a home's appreciation or depreciation are taken into account and adjusted for.
You as a taxpayer will end up paying taxes on a capital gain when you sell your property and your home has appreciated in value. Subtracting the money paid for the property's original value or basis, this is equal to the amount of money you gained on the sale. Similarly, you as a taxpayer will end up saving on taxes from any loss you may have suffered if, when you sell your property, your home has depreciated in value. With the property's original basis factored in, this is again equal to the amount of money you lost on the sale.
It does not matter if the property is encumbered by a debt in this equation. The home's original cost, plus or minus any profit or loss realized at its sale, is all that matters. Any costs associated with the selling of your home can also be subtracted. The calculation has the possibility of being a little confusing, even if the figures seem relatively straightforward, especially if you don't have the strongest math skills. Contacting a tax specialist is the best way to ensure you understand your tax obligations. Don't mess with the IRS, as the saying goes!
There are probably a lot more things at the forefront of your mind when you're selling a home than taxes. You should factor them in just the same, since they are an important element. Gain or loss, taxes will be involved in your real estate transaction. That's where the cost basis calculation is needed.
Cost basis is a United States tax law term. The basis is considered to be the original price you paid for the home. The cost portion is where factors such as a home's appreciation or depreciation are taken into account and adjusted for.
You as a taxpayer will end up paying taxes on a capital gain when you sell your property and your home has appreciated in value. Subtracting the money paid for the property's original value or basis, this is equal to the amount of money you gained on the sale. Similarly, you as a taxpayer will end up saving on taxes from any loss you may have suffered if, when you sell your property, your home has depreciated in value. With the property's original basis factored in, this is again equal to the amount of money you lost on the sale.
It does not matter if the property is encumbered by a debt in this equation. The home's original cost, plus or minus any profit or loss realized at its sale, is all that matters. Any costs associated with the selling of your home can also be subtracted. The calculation has the possibility of being a little confusing, even if the figures seem relatively straightforward, especially if you don't have the strongest math skills. Contacting a tax specialist is the best way to ensure you understand your tax obligations. Don't mess with the IRS, as the saying goes!
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