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Selling a house can yield some unexpected tax benefits. Few of us buy or sell often enough to stay abreast of the latest turns of the tax screw, so here’s an update on a few policies that could ease the pain:
The “amount realized” is the capital gain on the sale of your home. This is important: You could owe taxes on your capital gain, especially if it exceeded $250,000. Therefore, it’s usually to your financial advantage to minimize the amount realized. How is that done?
The “amount realized” is the difference between what you originally paid for the house and its ultimate selling price. Counter to intuition, it may be possible to adjust the amount you paid, or the “cost basis,” by factoring in some of these costs:
But—there’s always a ‘but’ when taxes are involved—you might have increased your ‘cost basis’ by making permanent improvements.
Permanent improvements, such as additions and major renovations, cost you money but also add value to your house. Improvements that have worn out, such as carpeting or dead landscaping, indeed cost you money, but since they do not support a higher current market value, you don’t have to count them.
As with all things tax, these general guidelines may or may not apply to your situation. If you sold a house in 2012, at least you’re now aware that there might be a tax benefit. For everyone else, tax season is a good reminder to label and keep all receipts related to owning, buying, and selling a house. The paper you save now could save you money down the road.
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