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Capital Gains Tax Formula:
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Capital gains tax is a tax on the profit made from selling your house when the sale price exceeds the original purchase price (cost basis). This tax applies to investment properties and second homes, while primary residences may qualify for exclusions.
The calculator uses the capital gains tax formula:
Where:
Explanation: The equation calculates the taxable gain (sale price minus basis) and applies the tax rate to determine the amount owed.
Cost Basis: Includes original purchase price plus any capital improvements (renovations, additions) but not routine maintenance. Selling costs can also be deducted from the sale price.
Tax Rates: Vary by jurisdiction and income level. Long-term capital gains rates (for assets held >1 year) are typically lower than short-term rates.
Tips: Enter the sale price and cost basis in dollars. Enter the tax rate as a decimal (e.g., 0.15 for 15%). All values must be positive numbers.
Q1: Is there an exclusion for primary residences?
A: Yes, in many countries you can exclude up to $250,000 (single) or $500,000 (married) of capital gains on your primary home if you've lived there 2 of the last 5 years.
Q2: What counts as a capital improvement?
A: Improvements that add value to the home, prolong its life, or adapt it to new uses (e.g., new roof, addition, kitchen remodel). Repairs don't count.
Q3: How is the tax rate determined?
A: Rates depend on your income level and how long you owned the property. Long-term rates are typically 0%, 15%, or 20% in the U.S.
Q4: What if I sold at a loss?
A: Capital losses can often be used to offset other capital gains or deducted against ordinary income up to certain limits.
Q5: Are there state capital gains taxes?
A: Some states impose additional capital gains taxes. Check your local tax laws for complete information.