Just wanted to make sure I understand...

I purchased a brand new home in March of 2005 for $257,033; approximately $206,000 first mortgage and approximately $51,033 second (line of credit). The property immediately appreciated to close to $400,000 in just a few short months.

Around September of 2005 I took out $89,000 of the equity in the form of a line of credit. The company I got the line of credit with sent the company that held the $51,033 line of credit a payoff check and also sent payoff checks to some of my other debts and cut me a check for the remainder.

My new balance with the first and the new line of credit is apporximately $295,000.

Currently I'm putting the house up for sale because I'm purchasing a new home. From my understanding, since this is a owner occupied home and I'm moving to another owner occupied, I cannot do what an investor can do with a 1031 exchange to avoid any penalties.

I have NOT lived in this house for 2 years and I know that I will be paying capital gains. What I want to know is will the IRS take into consideration the fees I had to pay in order to get the home sold?

For example, if I owe $295,000 and I were to sell this home for $395,000 and had to pay an agent; say 6 percent ($23,700), plus prepayment penalties of $8,000 and say about $5,000 in other fees; will they tax me only on what remains after paying those fees, or would they tax me based on the full $100,000? And would it be a flat 15% since I have lived in the house for over a year?

Will they also calculate it base on the remaining time I have before I made it to 2 years.

Hope I'm making sense.

Thanks in advance for your help,


L-Man

Thanks for the explanation. I had always wondered about that tax rule.