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Capital Gains Tax Formula:
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Capital gains tax is a tax on the profit made from selling a home. The tax applies to the gain (sale price minus cost basis) after applying eligible exclusions. Understanding this tax helps homeowners plan for their financial future after a home sale.
The calculator uses the capital gains tax formula:
Where:
Explanation: The formula calculates taxable gain by subtracting cost basis and exclusion from sale price, then applies the capital gains rate. If the result is negative (loss), the tax is zero.
Details: Accurate capital gains calculation is essential for tax planning, understanding net proceeds from home sales, and making informed decisions about real estate transactions. It helps homeowners avoid unexpected tax liabilities.
Tips: Enter all amounts in dollars. Common exclusion amounts are $250,000 for single filers and $500,000 for married couples filing jointly. Capital gains rates typically range from 0% to 20% (0 to 0.20 as decimal).
Q1: What is the adjusted cost basis?
A: The original purchase price plus qualifying improvements, minus depreciation and casualty losses. It represents your total investment in the property.
Q2: Who qualifies for the $500,000 exclusion?
A: Married couples filing jointly who both meet ownership and use tests, and haven't used the exclusion in the past 2 years.
Q3: Are there any exceptions to capital gains tax?
A: Yes, primary residences owned and used for at least 2 of the last 5 years qualify for exclusion up to $250,000/$500,000.
Q4: How is the capital gains rate determined?
A: It depends on your taxable income, filing status, and how long you owned the property (short-term vs long-term gains).
Q5: What if I sold at a loss?
A: If the sale price is less than the adjusted cost basis, you may have a capital loss that could be used to offset other gains.