Tax liability on a home sale

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 Q. I’m selling my home and I’ve collected decades of possible capital improvements to help on the tax bill. Can you explain what I can use to limit my tax liability when I sell?

A. Keep saving your receipts!

There are two key figures that go into the capital gain you realize when you sell your home, said Eric Furey, a certified financial planner with RegentAtlantic Capital in Morristown.

One is simply the sale price of the home when you sell it. The second, and more complicated one is figuring out your cost basis.

“Your cost basis includes what you originally paid for the home plus fees and closing costs plus any capital improvements you made,” Furey said. “This begs the question: what constitutes a capital improvement?”

The IRS says, “[capital improvements][/capital] add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and improvements to the basis of your property.”

Furey said the IRS goes on to list several examples of capital improvements that increase your cost basis such as additions, driveways, fences, a swimming pool, a new roof, etc.

You can find the full list here.

“After you figure out your cost basis, you’ll take the sale proceeds and subtract the cost basis you came up with to figure out the capital gain,” Furey said. “Also note that the federal government allows for a $250,000 per person exclusion for capital gains on real estate as long as you lived in the home for two out of the past five years.”

It’s important to consult your tax advisor when calculating your cost basis and capital gain from the sale of a real estate property.

And if you plan to move out of New Jersey, make sure you understand what the “exit tax” means.

Good luck!

Email your questions to moc.p1606937284leHye1606937284noMJN1606937284@ksA1606937284.

This story was first posted in May 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.