Agent

‘Excess mortgage’ spells trouble for longtime homeowner

Property sale may bring heavy taxes

The real estate event of the summer
Connect with other top producing agents at Connect SF, Aug 7-11, 2017

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 "excess mortgage." To calculate your capital gain from your $642,000 net or adjusted sales price, subtract your $182,000 basis to arrive at a $460,000 capital gain. Presuming you owned and occupied the ...