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by CareyBot

DEAR BOB: I recently sold my home and am trying to figure out if I owe any capital gain tax. My purchase price was $57,000 and we added about $125,000 of improvements over the years. The net sales price was $642,000. The mortgage balance was $422,000. I figure my capital gain is $220,000 ($642,000 minus $422,000). But my friend says my capital gain is $642,000 minus my $182,000 basis, for a $460,000 capital gain, of which $250,000 is tax-free. Who is right? – Hamilton R. DEAR HAMILTON: Your friend is right. You are wrong. Purchase Bob Bruss reports online. Forget the irrelevant mortgage balance. You have a situation where the $422,000 mortgage (probably from a refinance) exceeds your $182,000 adjusted cost basis ($57,000 plus $125,000 capital improvements). This is called an "exce...