Reporting Capital Gains Tax on Form 1040 Schedule D

If you are required to report a capital gains tax on the sale of your principal residence, it is reported on Tax Form 1040, Schedule D  (PDF), Capital Gains and Losses. (You cannot report a capital loss on your property).

If you owned your home for less than one year, you will report a short-term capital gain in Part I of Schedule D.  If you owned your home for more than one year, you will report a long-term capital gain in Part II of Schedule D. In column (a), you will provide a description of the property.  In column (b) you will enter the month, day and year that you acquired the property.  In column (c) you will enter the month, day and year that you sold the property.  In column (d) you enter the amount you sold the property for and in column (e) you enter the cost basis of the property for capital gains tax purposes.

To calculate the cost basis of the property, refer to your original closing documents and make sure you add the following items as they can significantly lower the amount of capital gains tax you may be subjected to:

• Purchase price
• Purchase costs (real estate brokerage fees or commissions, legal fees, recording fees, accounting fees, installation and testing fees, transfer and sales fees.  Taxes such as sales tax, excise tax, revenue stamps, real estate taxes, etc.)
• Improvements (adding a garage, installing a new bathroom, replacing a heating unit, etc.)
• Selling costs (title & escrow fees, real estate agent commissions, etc.)

If applicable, subtract:

• Accumulated depreciation (for example, if you ever took the office in the home deduction)

The total of these items would equal your cost basis and be entered in column (e) for the purpose of reporting accurate capital gains tax.

To calculate your net capital gain or loss, subtract the amount shown in column (e) from the amount shown in column (d).  The amounts reported on Schedule D, Capital Gains and Losses will be transferred to Tax Form 1040.

---