Capital Gains Calculator
Calculate Capital Gains
In the United States, individuals and corporations pay income tax on the net total of all their capital
gains just as they do on other sorts of income, but the tax rate for individuals is lower on "long-term
capital gains," which are gains on assets that had been held for over one year before being sold.
The tax rate on long-term gains was reduced in 2003 to 15%, or to 5% for individuals in the lowest
two income tax brackets . Short-term capital gains are taxed at a higher rate: the ordinary income
tax rate.
The IRS allows for individuals to defer capital gains taxes with tax planning strategies such as the
structured sale (ensured installment sale), charitable trust (CRT), installment sale, private annuity
trust, and a 1031 exchange.
A Positive Number:
you will have to pay Capital Gain Taxes.
A Sec. 1031 Exchange will defer this tax payment.
A Negative Number - you may be able to deduct the loss from your taxes. Ask your CPA for advice.
Note: This Capital Gains Calculator is for basic estimates only. Consult with your CPA for more detail and accurate figures. There are many parameters that the IRS considers when calculating Capital Gains.
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Adjusted Basis --
In tax accounting, adjusted basis is the net cost of an asset after adjusting for various tax-related items.
Adjusted basis is one of two variables in the formula used to compute gains and losses when determining gross income for tax purposes. The Amount Realized – Adjusted Basis tells the amount of Realized Gain (if positive) or Realized Loss (if negative).
Section 1012 of the Internal Revenue Code defines “basis” as a taxpayer’s cost in acquiring property, except as provided in Sections 1001-1092. Section 1016 then lists 27 adjustments to this basis. Generally, improvements to property increase basis while depreciation deductions decrease it.
Adjusted basis is calculated by beginning with an asset's original cost basis, and then making adjustments.
Adjusted basis is calculated as follows:
Purchase costs (title & escrow fees, broker commissions, shipping, sales tax, etc.)
Improvements (rehabilitation expenses & substantial repairs)
Legal fees (to defend or to perfect title to the property, zoning costs, etc.)
Selling costs (title & escrow fees, broker commissions, shipping, transfer fees, etc.)
Minus the costs represented by:
Accumulated depreciation, depletion, or amortization
Casualty or theft Loss
Other decreases to basis
Adjusted basis is crucial for calculating capital gains and ordinary gains when an asset is sold.
A complete list of adjustments which increase or decrease basis is found in IRS Publication 551, Basis of Assets.
Improvements.
These add to the value of your property, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your property.
The following lists some other examples of improvements.
Additions -- Bedroom, Bathroom, Deck ,Garage, Porch, Patio
Lawn & Grounds -- Landscaping, Driveway, Walkway, Fence, Retaining wall, Sprinkler system, Swimming pool
Heating & Air Conditioning -- Heating system, Central air conditioning, Furnace, Duct work, Central humidifier, Air Filtration system
Plumbing -- Septic system, Water heater, Soft water system , Water Filtration system
Interior Improvements -- Built-in appliances, Kitchen modernization, Flooring, Wall-to-wall carpeting
Insulation -- Attic, Walls, Floors, Pipes and duct work
Miscellaneous -- Storm windows, doors, New roof, Central vacuum, Wiring upgrades, Satellite dish, Security system
Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You also can depreciate certain intangible property, such as patents, copyrights, and computer software.
To be depreciable, the property must meet all the following requirements.
It must be property you own.
It must be used in your business or income-producing activity.
It must have a determinable useful life.
It must be expected to last more than one year.
What Property Cannot Be Depreciated?
Certain property cannot be depreciated. This includes land and certain excepted property.
You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. The cost of land generally includes the cost of clearing, grading, planting, and landscaping.
Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.
Your basis in your property is determined by how you got the property. Your basis is its cost if you bought it or built it. If you got it in some other way (inheritance, gift, etc.), your basis is either its fair market value when you received it or the adjusted basis of the previous owner.
Cost As Basis
The cost of property is the amount you pay for it in cash, debt obligations, other property, or services.
If you buy your property, your basis is its cost to you. This includes the purchase price and certain settlement or closing costs. Generally, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the property. If you build, or contract to build, a new property, your purchase price can include costs of construction.
Seller-paid points. If the person who sold you your property paid points on your loan, you may have to reduce your property's basis by the amount of the points.
Settlement fees or closing costs. When you bought your property, you may have paid settlement fees or closing costs in addition to the contract price of the property. You can include in your basis some of the settlement fees and closing costs you paid for buying the property, but not the fees and costs for getting a mortgage loan. A fee paid for buying the property is any fee you would have had to pay even if you paid cash for the property (that is, without the need for financing).
Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance.
Some of the settlement fees or closing costs that you can include in your basis are:
Abstract fees (abstract of title fees),
Charges for installing utility services,
Legal fees (including fees for the title search and preparing the sales contract and deed),
Recording fees,
Survey fees,
Transfer or stamp taxes,
Owner's title insurance
Any amounts the seller owes that you agree to pay, such as:
Certain real estate taxes (discussed later),
Back interest
Recording or mortgage fees
Charges for improvements or repairs, and Sales commissions.
Some settlement fees and closing costs you cannot include in your basis are:
Fire insurance premiums,
Rent for occupancy of the house before closing,
Charges for utilities or other services related to occupancy of the house before closing,
Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994),
Charges connected with getting a mortgage loan, such as:
Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs),
Loan assumption fees,
Cost of a credit report,
Fee for an appraisal required by a lender, and
Fees for refinancing a mortgage.
The selling price of the relinquished property is generally the amount realized on its sale, without reduction for selling expenses.
Capital Gain is the increase in an asset's value, such that it becomes worth more than the purchase price.
The gain is known as an unrealized capital gain until the asset is sold. Once the asset is sold and the profit is made, the gain is called a realized capital gain.
The information on this web site is only intended to provide a guide after consulting with your accountant and or tax attorney.
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Copyright © 2011 by Exchange Corporation of Montana ( ECOM ) · All Rights Reserved · P.O. Box 11387 · Bozeman, Montana 59719 · 406.388.4764
Exchange Corporation of Montana has no control over links from this web site and does not endorse
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Copyright © 2011 by Exchange Corporation of Montana ( ECOM ) · All Rights Reserved · P.O. Box 11387 · Bozeman, Montana 59719 · 406.388.4764
P.O. Box 11387 • Bozeman, Montana 59719 • 406.388.4764 • 800.579.1031 • Fax: 406.388.4784
