The difference between death and taxes is death doesn’t get worse every time Congress meets. — Will Rogers
I was on a listing appointment last evening when the question arose as to repayment of the $7,500 tax credit.
As a review, prior to the recent $8,000 first time home buyer tax credit there was a $7,500 tax credit. The difference was in the case of the $7,500 credit, it was really a 0% interest loan. Beginning the second tax year after receiving the credit, the taxpayer has to repay $500 per year for 15 years. If the home is sold prior to 15 years, the balance is due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated.
So the question is: how do you determine the profit on a home sale?
I didn’t know off the top of my head. So I tried to research it when I got home. No one had it online until I got to irs.gov…
What language is this written in????
Here’s what I found out:
Selling Price – Selling Expenses = Amount Realized. | Amount Realized – Adjusted Basis = Gain/(loss)
Selling expenses are fairly easy. Commissions, advertising, legal/title fees and seller paid loan charges.
Adjusted Basis (IRS term). This one’s harder. This is the purchase price of the home plus cost to acquire (title work but no loan charges, recording, survey, etc). Basis can be increased by certain improvements such as appliances or additions.
Hope that’s simple enough for you!
Disclaimer: I am not a tax professional. If you are in this situation, you need to consult with your tax adviser to get accurate information.
Photo Credit: Flickr/blmurch