Capital Gains on Real Estate Calculator
Adjusted Cost Basis:
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Total Realized Gain:
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Estimated Tax Liability:
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Net Profit After Tax:
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Understanding Real Estate Capital Gains
When you sell a property for more than you paid for it, the profit is considered a capital gain. For real estate investors and homeowners alike, calculating the exact gain is more complex than simply subtracting the purchase price from the sale price. You must account for the "Adjusted Cost Basis."
What is Adjusted Cost Basis?
The adjusted cost basis is the true cost of the investment. It includes:
- The original purchase price.
- Capital improvements (renovations that add value or extend the property's life).
- Selling expenses (commissions, legal fees, and closing costs).
Realistic Example:
Imagine you bought a condo for 300,000. Over five years, you spent 40,000 on a new kitchen and flooring. You eventually sell the condo for 450,000, paying 25,000 in agent commissions and legal fees.
1. Total Basis: 300,000 + 40,000 + 25,000 = 365,000
2. Capital Gain: 450,000 – 365,000 = 85,000
3. Tax (at 15%): 12,750
Imagine you bought a condo for 300,000. Over five years, you spent 40,000 on a new kitchen and flooring. You eventually sell the condo for 450,000, paying 25,000 in agent commissions and legal fees.
1. Total Basis: 300,000 + 40,000 + 25,000 = 365,000
2. Capital Gain: 450,000 – 365,000 = 85,000
3. Tax (at 15%): 12,750
Short-Term vs. Long-Term Gains
In most jurisdictions, if you hold a property for more than one year, it qualifies for long-term capital gains tax rates, which are typically lower than standard income tax rates. Properties held for less than a year are usually taxed as ordinary income.
Primary Residence Exclusion
It is important to note that many regions offer tax exclusions if the property was your primary residence for a specific period (e.g., the Section 121 exclusion in the U.S.). Always consult with a tax professional to see if you qualify for exemptions that could reduce your taxable gain to zero.