Understanding Capital Gains in Real
Estate
When
you sell a stock, you owe taxes on your gain—the difference between what you
paid for the stock and what you sold it for. The same is true with selling a
home (or a second home), but there are some special considerations.
How to Calculate Gain
In real estate, capital gains are based not on what you paid
for the home, but on its adjusted cost basis. To calculate this:
1. Take the purchase price of the home: This is the sale
price, not the amount of money you actually contributed at closing.
2. Add adjustments:
3. The total of this is the adjusted cost basis of your
home.