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Long-term Capital Gains Estimator*

*Note: Short-term capital gains, property held for less than one year, are added to your income tax and taxed at the ordinary income tax rate of your tax bracket.

Instructions: 

  1. Enter the Original Purchase Price of the Property. 

  2. Enter the Sales Price of the Property.

  3. Enter any expenses and improvements incurred to prepare for the sale of the property. Click here to learn more about expenses.

  4. Enter the value of any remaining mortgage.  This optional input is only used to calculate the Estimated Remaining Cash on Hand. 

  5. Enter the sales commission on the sale of the property.

  6. Select Yes if this has been your primary residence for two of the last five years.  For additional information, See IRS Topic 701, Sale of Your Home

  7. Enter your marital status.  This will affect your possible exemption amount and your Capital Gains Tax Rate. 

  8. Enter your 2022 Taxable Income but do not include this capital gain.  Your Capital Gains Tax Rate is dependent on your taxable income. For more information, see this Nerd Wallet article, Capital Gains Tax: 2022-2023 Tax Rates and Calculator

  9. Enter the purchase price of your next property.  This optional input is only used to calculate the Estimated Remaining cash on Hand. 

  10. Click the Calculate button to calculate the Estimated Net Proceeds from Sale and Estimated Remaining Cash on Hand.

Capital Gains Estimator

Methodology, Equations, and Example:

Capital gains refer to the profits earned from the sale or disposition of a capital asset, such as stocks, bonds, real estate, or valuable personal property. It represents the difference between the sale price and the asset's original purchase price. A capital gain is realized when the sale price exceeds the purchase price, while a capital loss is incurred if the sale price is lower. Capital gains are typically subject to taxation in many countries, including the United States, where they are taxed at different rates than regular income. The taxation of capital gains can vary depending on factors such as the asset's holding period and the taxpayer's income level. For more specific information and details, it is recommended to consult relevant tax laws and regulations in the particular jurisdiction or visit the IRS Topic No. 409, Capital Gains and Losses.

Expenses: When calculating capital gains tax, certain expenses related to preparing the property for sale and closing costs can be considered to reduce the taxable gain. These expenses are generally referred to as "costs of acquisition" and "costs of disposition." Costs of acquisition may include expenses incurred to acquire or improve the property, such as real estate agent commissions, legal fees, title search fees, and any costs associated with renovations or repairs that directly increase the property's value. Disposition costs encompass expenses that directly relate to the sale of the property, including real estate agent commissions, advertising costs, and legal fees involved in the transfer of ownership. Not all expenses may be eligible for a deduction, and the specific rules and regulations regarding the deductibility of these expenses can vary depending on the jurisdiction. This calculator is only an estimator, and it is advisable to consult with a tax professional and refer to relevant tax laws and regulations in your specific jurisdiction for accurate and up-to-date information regarding the deductibility of expenses when calculating capital gains tax.

Short Term Capital Gains, property held for one year or less, are added to your income tax.  This calculator is to be used only for long-term capital gains.

Example: 

 A married couple purchased a home in 2019 for $555,000 and held a $100,000 mortgage.  They spent the next four years and $300,000 renovating the property.  In 2023, they sold the property for $1,900,000 and paid 7% in real estate fees.   Their 2022 combined taxable income is $260,000.  Note that this does not include the capital gain from the sale of their property.

 

Capital Gain = Sales Price x (1 - % Sales Commission) - Original Purchase Price - Expenses - Excluded Amount

Based on the example: $1,900,000 x (1 - 7%) - $555,000 - $300,000 - $500,000 = $412,000

Where:

Sales Price - The property's sale price  

Sales Commission - Commission and fees paid on the property sale.  This is known as "costs of deposition"

Original Purchase Price - Original purchase price of the property.  This is known as "costs of acquisition"

Expenses  Expenses incurred to prepare the property for sale.  This is known as "costs of acquisition"

Excluded Amount - This is an exclusion the IRS allows on the gains.  The property must have been the primary residence for two of the last five                                   years.  If that condition is met, "you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of                                        that gain if you file a joint return with your spouse." This information is from IRS.gov, Topic No. 701, Sale of your House

Capital Gains Taxable Rate:

= Capital Gain + Taxable Income.  Look up this value in the table below to calculate the Long Term Capital Gains Rate.

Costs of Acquisiton and Costs of Disposition

Long Term Capital Gains Rates

Adapted from IRS Topic No. 409, Capital Gains and Losses

Based on the example:  $412,000 + $260,000 = $672,000

Taxed at 0%:   $83,350              Tax Amount: $0

Taxed at 15%: $433,849            Tax Amount: $65,077.35

Taxed at 20%: $154,801            Tax Amount: $30,960.20

 $672,000                                 $96,037.55

Tax rate = $96,037.55 / $672,000 x 100% = 14.29%

Where

Taxable Income - Your taxable income, not including this capital gain.

Capital Gains Tax: 

= Capital Gains x Capital Gains Rate

Based on the example: $412,000 x 14.29% = $58,880.16

Estimated Net Proceeds from Sale:

= Sales Price x (1 - % Sales Commission) - Original Purchase Price - Expenses - Capital Gains Tax

Based on the example: $1,900,000 x (1 - 0.07%) - $555,000 - $300,000 - $58,880 = $853,120 

Estimated Remaining Cash on Hand: 

= Sales Price x (1 - % Sales Commission) - Capital Gains Tax - Remaining Mortgage (optional) - New Home Purchase Price (optional)

Based on the example: $1,900,000 x (1 - 0.07%) - $58,880 - $100,000 = $1,608,120

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