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if you buy a house for 200k and ~ten years later you sell it for 300k, do you pay tax on the 100k that you gained? what if you made home improvments, say $50k worth of materials and labor (some of the labor you did yourself), would that make a difference?
I am just trying to figure out how much effort to put into an upcoming remodelling. I am curious how that would affect my taxes when I eventually sell this place in the future.
yeah, I know I should probably ask a tax professional, but just trying to get an idea of where to start, what kind of questions to ask later on.
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Kinda not an issue these days but.. yeah.
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The link is good but didn't really answer your question.
Your basis is the amount you paid plus the amount you can document as "capital improvements". That can be labor, materials, fees associated with remodeling, but does not include capital spent on maintenance such as painting or repairing the roof. It gets a little hazy when you try to figure out if upgrading a 50-year old furnace is an improvement or maintenance.
If you meet the use and time test, current law lets you exclude $250k tax-free ($500k if married filing jointly) of capital gain. One can make a lot of money if they can buy cheap, fix cheap, live there for 2 years and sell for a premium. Lather, rinse, repeat.
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Yeah, what Wailer said. If you do most/all of the actual work yourself *and* live in the property at the same time, it is an excellent tax-free way to build wealth. Easy to hold a day job, remodel on evenings/weekends.
By comparison, if one was to work as a self employed contractor on somebody else's property, they'd pay 15% self employment tax plus income tax. Work on a house you live in for two years and the fruits of the labor are tax free...assuming you can get someone to buy your fruits.
