Q: My wife and I purchased our second home in Wisconsin for $320,000 in 1991. My wife passed away last year. The house has been valued at $1.5 million.
How do I calculate taxes on my gain if I sell this year?
A: On a second home sale, you will be taxed on long-term capital gains. You can calculate this by taking the sales price, and subtracting the costs of the purchase and sale of the property, then subtracting the cost of any capital improvements (not including decorating) or structural additions you made to the property over the years.
Let’s assume that after subtracting the costs of sale, you net out at $1.3 million. If you spent $320,000 to buy the place, and had another $250,000 in structural improvements over the years, your capital gains would be around $720,000. On that amount, you’d owe federal capital gains tax of 15 percent plus any applicable state tax.
For more details, please speak to your accountant or tax preparer.
Jan. 19, 2009.