How to Calculate Capital Gain on Sale of House Property

by Marguerite Madison ; Updated July 27, 2017
If you have a gain on the sale of a house, you may owe capital gains tax.

The capital gains tax applies not only to the sale of stocks and bonds, but also to the sale of other capital assets, including a house. If the sale of a house results in a profit, you have experienced a capital gain. The sale of a house for a loss represents a capital loss. Profits from the sale of capital assets are taxed as either a short-term or long-term capital gain, and each has its own unique tax implications.

Step 1

Determine whether the sale of the house would qualify as a short-term or long-term capital gain. A short-term capital gain occurs if the house was sold less than a year after it was purchased. A sale would be considered a long-term capital gain if the house was sold a year or more after it was purchased.

Step 2

Find the amount of the capital gain that resulted from the sale of the house. To find this, subtract the purchase price from the sale price. If the result is a positive number, you experienced a capital gain. If the result is negative, you experienced a capital loss and you may be eligible to deduct the loss from your income if the house was an investment property.

Step 3

Calculate the capital gains tax that you owe if you sold the house for a profit. If the house was sold for a short-term capital gain, it will be taxed at your ordinary income tax rate. Find this rate by looking at the current year's tax brackets and matching your income with the applicable tax rate. If the house was sold for a long-term capital gain, your profits will be taxed at 15 percent, unless you are in the bottom two tax brackets. As of 2012, those in the 10 percent and 15 percent tax brackets are exempt from long-term capital gains taxes.

Tips

  • Certain permanent improvements made to a house may decrease the capital gain when you sell. You may qualify to exclude all or part of the capital gain from your taxable income if you sell your principal residence and meet certain ownership and use tests.

Warnings

  • State tax rules may differ than the federal rules on capital gains and losses.

About the Author

Marguerite Madison has been writing and editing professionally for over a decade for clients ranging from medical education companies to clothing designers. Marguerite has written blogs, restaurant reviews, press releases and short fiction. She holds a Bachelor of Arts in English from Rutgers University.

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