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Updated:         May 28, 2018

Note:   The current capital gain exemption equaling $250,000 for single persons and $500,000 for a married couple has made it less necessary to maintain records for future adjustments to basis, etc. It is still recommended that a seller be familiar with the above terms and retain good records as the tax code has a habit of being revised regularly. Plus, if the gain from a sale exceeds the exclusion the ability to adjust the basis may become important in saving capital gain taxes.   

It can seem as though the federal government tries to confuse us with all those terms related to the purchase and sale of a home. There is a reason for all of the terms....the plan is to make sure we pay our fair share of taxes due, but only on the actual amount of gain. Thus, we have all of the adjustments for various expenses, fix-up costs and previous gains, in determining the amount upon which taxes are owed.

This glossary of terms may be a helpful reference when preparing to buy or sell a home.

ADJUSTED BASIS: The original cost (basis) of your home with adjustments made. Positive adjustments (those added to the original basis) include the cost of any capital improvements or additions and expenses incurred when the home was purchased (i.e.; fees paid to a buyer's broker or an attorney). Negative adjustments (those subtracted from the original basis) include any casualty loss deductions that were taken on the home and gains accumulated via the sale of previous homes.

Items added to the basis will ultimately reduce the amount of capital gain to be paid upon sale while items subtracted will mean more capital gain liability.

A property's original basis depends upon how it was acquired. Although basis generally refers to the home's cost, it is different if the home is received as a gift.

ADJUSTED SALES PRICE: Amount realized on a home sale minus the qualified expenses of fixing up the home in preparation for sale.

AMOUNT REALIZED: Selling price minus selling expenses.

FIX-UP EXPENSES: Cost of work performed on a home to assist in its sale. The work must be done within 90 days before or after a purchase agreement is signed. Moreover, these expenses must be paid within 30 days after the actual closing date. Fix-up expenses do not include expenses that can otherwise be deducted from taxable income, selling expenses, or capital improvements.

SELLING EXPENSES: Items paid to complete the sale of a home, but not for work done to the home itself. These include the broker's commission, advertising costs, escrow fees, legal fees and loan fees (such as points paid to a lender to help a buyer obtain a mortgage).

SELLING PRICE: The total amount paid by buyer to purchase a home. This includes cash, the fair market value of any other property received, any seller liabilities assumed by the buyer (for instance, if the buyer paid the seller's real estate commission), and any liabilities assumed on the home purchased (for example, if an existing mortgage is assumed).

While these terms are the basic ones used in identifying tax liability, it is always recommended that one consult tax counsel following the sale or purchase of a major asset.

Web Page/IRS Code