Posted on May 18, 2006 at 18:16:01:
When you sell a real property investment for more than you paid for it originally, what is your taxable capital gain? Is it the sale price less what you paid for it? Not exactly.
Certain adjustments can trim the gain that you report. All expenses that went along with the purchase of the property should increase you basis: commissions, appraisals, legal fees, closing costs, recording fees and similar expenses. If the property was inherited, its basis is stepped up to its fair market value at the time of the bequestor’s death. Add in, too, the cost of any improvements made to the property while you owned it. (You did keep records, didn’t you?)
Selling the property engenders deductible expenses, too. The cost of advertising the property and other sales-related expenses, such as fees, commissions and legal expenses should also be deducted from the sales price, reducing the gain – and the tax.