By Sheila Long
Taxes are paid on capital gain, not equity or profit. It is possible to sell property without realizing much profit and still owe substantial capital gains tax. Capital gain is simply the difference between the sales price and the adjusted basis (i.e., what you paid for the property, plus amounts spent on capital improvements, less depreciation taken), less any closing costs associated with the sale.
For More Information, Contact:Sheila Long, CES® Vice President | Old Republic Exchange Company Regional Sales Executive C: 480.341.2032 | D: 415.515.7017 |
To calculate your estimated capital gain: First, subtract the adjusted basis from the sales price. Next, subtract the customary closing costs of your transaction, such as commission, fees, transfer tax, etc. Finally, multiply the capital gain by your combined tax rates (federal and state) to determine your estimated capital gain tax.
1. Calculate Net-Adjusted Basis:
| Original Purchase Price | $400,000 |
| Plus Capital Improvements | $25,000 |
| Minus Depreciation Taken | ($175,000) |
| Equals Adjusted Basis | $250,000 |
2. Calculate Capital Gain:
| Current Sales Price | $600,000 |
| Minus Customary Closing Costs | ($30,000) |
| Minus Adjusted Basis | ($250,000) |
| Equals Capital Gain | $320,000 |
3. Calculate Capital Gain Tax:
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Filing Status:
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As a Qualified Intermediary, Old Republic Exchange, its officers and employees do not provide, and this communication is not intended to be, tax or legal advice. Old Republic Exchange makes no representations or warranties regarding the tax consequences of your transaction. You should consult a tax or legal professional of your choosing to advise you of the benefits and risks of your specific transaction.