Written by Posted On Monday, 06 August 2018 18:05

  1. Capital gains are taxes paid on the difference between what you paid for a home and what you sell it for, based on its “adjusted cost basis”. There are some special considerations, but first let’s look at how to calculate your capital gain.
  2. Purchase price
  3. Total adjustments equals
  •          Cost of purchase including transfer fees, attorney fees and inspections.
  •          Cost of sale including inspections, attorney fees, real estate commission.
  •          Cost of improvements including room additions, deck, security system, major remodel, etc. Improvements must have a “useful life” of more than a year.  
  1. Your adjusted cost basis
  • The sum of your purchase price and the adjustments.
  1. Your capital gain
  • Subtract the adjusted cost basis from the amount you sell for to get your capital gain.

webp net gifmaker 2 orig 


Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000. If you are married, the exemption increases to the first $500,000. Certain eligibility rules apply, but the main ones are:

  1. You have owned the home for at least 24 months.
  2. The property was your primary residence for 2 of the previous 5 years. The 2 years of residence do not need to be concurrent.
  3. There are other rules, but they get confusing. If you don’t fall into the above, give us a call and we’ll check and see if you are exempt. See IRS Publication 523 for more details. 


If you sell a rental property and do not meet the residence eligibility rule, you may have to pay capital gains and pay back (or “recapture”) some or all of the depreciation you were entitled to take on your property. “Recapturing” depreciation means you must include it as ordinary income on your tax return. In order to defer capital gains and recapturing depreciation, you may opt to complete a “1031” Exchange. See our article on 1031 Exchange here.


This article is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, legal advice or instruction.

Rate this item
(0 votes)
Pete Caruso

Pete has been a licensed real estate agent since 1998 and has represented buyers and sellers throughout San Diego County.  Past clients include professional athletes, business owners, first time home buyers and sellers. 

A Police Officer for over 31 years, Pete began and finished his distinguished career in Downtown San Diego.   Witnessing the transformation of Downtown from burned out warehouses and vacant lots to the successful urban revitalization of today, Pete brings unmatched area knowledge to the San Diego Urban and Suburban market!

Pete and his wife, Anna, live and own in the East Village at The Legend but have lived all over San Diego for the past 35 years.  Pete offers new residents professional guidance from a local’s perspective. 

Negotiation skills, problem solving abilities, attention to detail and an easy-going nature, Pete is the perfect fit for the discerning client who demands perfection.

  • Possessing the knowledge and experience of 17 years as a Police Dog Handler/Trainer, Pete gives back to the community by offering free dog training classes to his fellow Downtowners.
  • Pete has taught animal behavior seminars for the trainers at Sea World, The San Diego Zoo and Canine Companions for Independence.Pete has supervised the training for well over 100 Police Dog teams during his career, along with dog handlers from the US Navy Seals.

Agent Resource

Limited time offer - 50% off - click here

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.