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Wondering how inflation is taken into account on the original purchase price of a primary residence when figurine the cost basis.
For example:
If a home was purchased by a couple filing jointly in 1995 for $100,000 and lived in year round for 25 years. They do $50,000 in home improvements during that time. The cost basis is $150,0000
It gets sold in 2020 for $750,000 and the profit would be $600,000, less the $500,000 exclusion for a married couple.
If the remaining $100,000 is considered capital gains what about inflation? How much of the $750k sale price is due to purchasing dollar value going down? Shouldn't that be deducted as well?
An online inflation calculator shows the inflation rate from 1995 to 2020 is 1.23% and the buying power of $100 in 1995 is equivilant to $169.82 in 2020.
So shouldn't the cost basis for the example home go up another $69,820?
Wondering how inflation is taken into account on the original purchase price of a primary residence when figurine the cost basis.
For example:
If a home was purchased by a couple filing jointly in 1995 for $100,000 and lived in year round for 25 years. They do $50,000 in home improvements during that time.
It gets sold in 2020 for $750,000.
The cost basis is $150,000 and the profit is $600,000 less the $500,000 exclusion for a married couple.
If the remaining $100,000 is considered a capital gain what about inflation? How much of the $750k sale price is due to purchasing dollar value going down? Shouldn't that be deducted as well?
An inflation calculator shows the inflation rate from 1995 to 2020 is 1.23% and the buying power of $100 in 1995 is equivilant to $169.82 in 2020.
So shouldn't the cost basis for the example home go up another $69,820?
Wow. So grandma really gets screwed on the house she bought in 1970 for $30,000 when she moves to Florida.
Thanks for the replies.
Well don’t forget over time the exclusion was changed too. Prior you only deferred taxes by rolling over what you sold for into a property that cost the same or more...
Now you get an Exclusion and don’t have to buy anything
Wow. So grandma really gets screwed on the house she bought in 1970 for $30,000 when she moves to Florida.
Thanks for the replies.
If a person buys $30K of stocks in 1970 and sells them for One Million Dollars in 2021, they're going to have to pay capital gains taxes on the entire amount of the gain. So really, Granny should be thankful for the tax break that she gets by not having to pay taxes on the entire amount.
Maybe Granny should just take out a large mortgage on the house and rent it out instead of selling it. That way, no tax is owed since she didn't SELL the property... but she could still pocket several hundred thousand dollars to pay for her nice Florida condo and have money left over for her Cadillac and living the good life in FLA. Then, when she kicks the bucket, the property passes to her heirs at the current market value and no tax is owed. So, you can actually screw the IRS... LEGALLY.
MFJ exclusion is $500K. Single or MFS exclusion is $250K
Op was talking about couple in his example but single would be 250k ..only exception is if you were married and your spouse died , they give you some extra time to still take the married exclusion
Wow. So grandma really gets screwed on the house she bought in 1970 for $30,000 when she moves to Florida.
Thanks for the replies.
Screwed by turning a $30k investment into $500k (or $700k or whatever)? Where do I sign up???
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