Capital Gains Tax - Seller Credited Closing Costs

[ChristineW]

What is the name of your state? CT

When reviewing potential capital gains tax for next year based on the purchase and sale of a non-resident home, I need to know how to handle seller credited closing costs.

For example, when the home was purchased in January, the seller credited me $5000 towards closing costs. Does this need to be deducted from the Cost Basis of the Capital Gains Calculator or reduced from the "Transaction Costs"?

On the flip side, when I just sold the home, I credited the new buyers $5000 towards their closing costs. Can I include this as part of my "Transaction Costs" when figuring out the total Net Proceeds From Sale?

Also, I was told I can deduct costs associated with the purchase of the home under the Transaction Costs. Does that include City/Town taxes I paid for 6 months? In other words, can I use this to both reduce my Capital Gains and then again when I go to itemize?

Thank you in advance for any info.

Christine

 

[abezon]

What is the name of your state? CT

When reviewing potential capital gains tax for next year based on the purchase and sale of a non-resident home, I need to know how to handle seller credited closing costs.

For example, when the home was purchased in January, the seller credited me $5000 towards closing costs. Does this need to be deducted from the Cost Basis of the Capital Gains Calculator or reduced from the "Transaction Costs"?

On the flip side, when I just sold the home, I credited the new buyers $5000 towards their closing costs. Can I include this as part of my "Transaction Costs" when figuring out the total Net Proceeds From Sale?

Also, I was told I can deduct costs associated with the purchase of the home under the Transaction Costs. Does that include City/Town taxes I paid for 6 months? In other words, can I use this to both reduce my Capital Gains and then again when I go to itemize?

1. yes
2. yes
3. Costs of transaction are costs associated with a purchase or sale. You pay taxes every year you own a house, so taxes/insurance/utilities/interest are not transaction costs. They are ownership costs. Also, if there was an escrow account, costs are deductible only when paid from the escrow account, not when you put money in.

Normally you deduct interest & taxes, however if you are not itemizing, you can elect to capitalize them, which increases your basis. (You file the election with your return.) If you are itemizing, it usually will be better to deduct the interest & taxes on schedule A. You get to the same taxable income, but more of it is capital gains. OTOH, it sounds like you owned the house less than a year, so any profit is short term capital gains & is taxes as ordinary income anyway.