If you sold your main home in 2005, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). If you can exclude all of the gain, you do not need to report the sale on your tax return.
Unlike most federal tax forms it's fairly easy to calculate if you have a capital gain on your sale.
Just take your contract sale price and subtract most of your selling expenses, i.e. your real estate sales commission, any advertising you may have paid for personally, legal fees, etc.. That will give you your amount realized or net before subtracting your adjusted basis.
Adjusted basis is a sometimes confusing term which just means what you paid for your house plus what you've spent to improve or maintain it.
For example if you paid $200,000 for your house and have met the residency test, that is, you lived in the home for at least 2 years out of the past 5 years you meet the residency test. As an added bonus these 2 years don't even have to be consecutive; you can have lived in it 6 months, lived somewhere else 2 years and then moved back in for another 18 months. That qualifies as 2 years and you meet the residency test.
Take your $200,000 original sale price, ADD the cost of any improvements you may have made that have a useful life of longer than 1 year such as; a new heating & cooling system, new deck, new landscaping, new roof, etc.. Most anything can count as long as it has a useful life of 1 year.
Let's say you paid the original $200,000, then spent $5,000 installing a new heat & air system, $2,000 for a new deck, and put on a new roof at a cost of $4,000. That's $11,000 in improvements to add to your $200,000 bringing your adjusted basis up to $211,000.
Just for fun let's say you also installed a modest $20,000 swimming pool; now we're up to $231,000 for your adjusted basis.
You've lived there 10 years and property has really risen in value in your area to you and your wife sell your home for $475,000.
Subtract $231,000 from your $475,000 and you have a capital gain of $244,000 without even figuring in your selling expenses.
Congratulations, you owe NO TAX on the sale of your home and you can roll 100% of your money into your new house.
NOTE: I am a Realtor, not a CPA. You need to check with a qualified tax professional before using this advice.
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