Re: cost basis and capital gains on homes

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: cost basis and capital gains on homes
Date: Thu, 21 Jan 1999 16:50:54 -0500

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>Help, I cannot figure out how to calculate the gain on a series of home
>sales.  Here is my situation:
>
>1991 - bought home (home #1) for $126,000
>1995 - sold for $202,500 and bought a new home (#2) for $312,500.
>I calculated the gain at the time to be approx. $54,000 after adding
>improvements to the original basis and subtracting closing fees,

Your basis in the home #2 was lowered by the deferred gain.  So at the
moment you purchased it, your basis was $312,500 - $54,000, or
$258,500.

>1998 - sold home #2 for $337,000.  I calculate the adjusted sales price
>(-commission, etc.) to be $314,000.  My basis in this house was $316,000

Ok, this implied you made an improvement of $3,500.  That gets added
to the $258,500 basis to give a total basis of $262,000

>(one major improvement in the 3 years I lived there).  I then bought a new
>home for $249,900 (moved to a different state).  I calculate a $2000 loss
>on home #2.

Nope.  You actually had a gain of $314,000 - $262,000, or $52,000.
But since house #2 was sold under the new rules, you can exclude the
gain from income.  Furthermore, the sale of home #2 has NO EFFECT on
the basis of home #3, because the new rules wiped away all that
rolling gain over stuff.

>My problem is that i cannot figure out how to report the gain now that I
>have home #3.  Since I lived in home #2 for at least 2 years, I am eligible
>to avoid capital gains tax on the sale of the previous two homes, right?
>My basis in home #3 is $251,000, but we just finished the basement which
>would boost the basis to $273,000.  

Then $273,000 is your current basis.  The 1998 sale of home #2 broke
any link to past stuff.  The basis of home #3 stands on its own.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.2

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