How do you calculate capital gains when selling a home in the USA? Documentation requirements?

When you sell your primary residence, you actually get a pretty significant tax break. If you've lived in the home for at least 2 of the last 5 years, you can exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from your income. For calculating your actual gain, you take the selling price, subtract selling expenses (like real estate commissions), and then subtract your "adjusted basis." Your basis is the original purchase price PLUS improvements you've made over time. This is where receipts come in - they prove the cost of improvements that increase your basis. There's no standard percentage you can add without documentation. The IRS expects you to have records. However, if you've lost some receipts, you might be able to reconstruct records using bank statements, credit card statements, or even photos of the improvements with written estimates. For inherited property, your mom would get what's called a "stepped-up basis" - meaning the basis becomes the fair market value at the time of death, not what her sister originally paid. This effectively wipes out any capital gains that occurred during her sister's lifetime.

After going around in circles with capital gains calculations when selling my vacation home, I finally used https://taxr.ai to analyze all my documents and figure out my true adjusted basis. Uploaded my closing statements, renovation receipts, and tax records, and it made sense of everything. The tool flagged several improvements I made years ago that I had completely forgotten about! Showed me exactly which expenses qualified to increase my basis and which were just regular maintenance. Even identified when certain repairs were actually part of larger improvement projects that COULD be added to basis. It guided me through the exact IRS rules for my situation and helped me document everything properly. Saved me hours of research and probably thousands in taxes by making sure I wasn't missing valid deductions from my basis.

Just wanted to follow up after trying taxr.ai for my home sale situation. Honestly, it was a game-changer! I was stressing about all my missing receipts from DIY projects, but the tool walked me through creating acceptable alternative documentation. It helped me properly categorize each expense between deductible improvements versus non-deductible repairs and maintenance. Found that my kitchen remodel from 2017 added way more to my basis than I realized because it included some electrical upgrades I'd forgotten about. The best part was that it identified several capital improvements I made that I didn't even know qualified! Ended up with a much higher adjusted basis than I initially calculated, which significantly reduced my capital gains exposure.

If you're still confused after calculating your capital gains and need to talk to someone at the IRS, good luck getting through! I spent 3 days trying to reach someone before discovering https://claimyr.com. You can check out how it works here: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and call you when an agent is ready. Used it when I had questions about reporting the sale of my inherited property and documenting the stepped-up basis. Got through to a real IRS agent who explained exactly what documentation I needed for my specific situation. Was especially helpful because my situation was complicated (partial rental property with some undocumented improvements), and I needed clarification on exactly what forms to file and what evidence would satisfy an audit.

I need to apologize for my skepticism about Claimyr. After struggling to reach the IRS for a week about my home sale capital gains calculation, I decided to try it as a last resort. Fully expected it to be a waste of time. Was absolutely shocked when I got a call back in about 90 minutes saying an IRS agent was on the line! The agent walked me through exactly how to document my home improvements without receipts using alternative methods. They explained I could use before/after photos, contractor statements, and even estimates based on square footage for certain standard improvements. For anyone dealing with capital gains questions on home sales, especially with documentation issues, being able to actually speak with an IRS representative made all the difference. Would have spent weeks guessing otherwise.

Don't forget to check if you qualify for any partial exclusions if you're selling before hitting the 2-year mark! I had to sell after 18 months due to a job relocation, and I still got to exclude a portion of my gains based on the 18/24 months I lived there. There are exceptions for work relocations, health issues, and certain unforeseen circumstances that let you claim a partial exclusion. The calculation is based on the fraction of the 2-year period you actually lived in the home.

Does anyone know if property tax and mortgage interest paid over the years can be added to your basis? I've been meticulously tracking these payments thinking they would help reduce capital gains when I sell.

Great thread with lots of helpful info! I wanted to add one important point about record-keeping that might help others in similar situations. Even if you've lost original receipts, the IRS accepts "reconstructed records" as long as they're reasonable and based on available evidence. I learned this when preparing for my home sale last year. You can use: - Bank statements showing payments to contractors or home improvement stores - Credit card statements with clear descriptions - Canceled checks made out to contractors - Permits pulled for work (these are public records) - Before/after photos with written explanations - Contractor invoices or estimates (even old ones) The key is being able to demonstrate that the improvements actually happened and provide a reasonable estimate of costs. I was able to reconstruct about $35,000 in improvements this way, which made a huge difference in my capital gains calculation. Also, don't forget about smaller improvements like new appliances, fixtures, or even landscaping that adds value - these all count toward your adjusted basis if you have documentation.

One thing I haven't seen mentioned yet is the importance of documenting the selling expenses when you calculate your capital gains. These can significantly reduce your taxable gain and include: - Real estate agent commissions (usually 5-6% of sale price) - Title insurance and escrow fees - Attorney fees - Transfer taxes - Home inspection fees paid by seller - Staging costs - Marketing expenses - Any repairs required by the buyer as part of the sale These selling expenses are subtracted from your sale price along with your adjusted basis to determine your actual capital gain. For a $400,000 home sale, you might have $25,000+ in selling expenses, which is a substantial reduction in your taxable gain. Also, @AstroAlpha, regarding your mother's inheritance situation - make sure she gets a proper appraisal of the property's fair market value as of the date of death. This becomes her new basis, and having professional documentation will be crucial if the IRS ever questions the stepped-up basis amount. Don't rely on online estimates like Zillow - get a real appraisal from a licensed appraiser.