Expenses may offset profit on the sale of condominium

Q: We bought a condo in our name and paid for it with cash. Our son moved into the unit and paid no rent for 18 months. He was working on his Ph.D., so we were trying to help him out. He got a job offer across the country and moved out of our unit. It has been empty for six weeks, and we want to sell it. Are we going to have to pay capital gains taxes on this property?

A: It seems that the condo was a second home for you and your family. You didn't own it as an investment, received no rent and didn't have a lease with a tenant. Given the information you have provided, if you sell the condo and make a profit on the sale, you will have to pay up to 20 percent in capitalgains taxes on that profit.

We don’t know what tax bracket you and your family are in, but the most you would pay in capital gains taxes would be 20 percent of the profit.

Given that you have owned the property for less than two years, we don't know how much appreciation you've seen with this condominium.

If you sell it for more than you purchased it, you have to determine whether you have a profit. Even if the condo's value went up 15 percent during the past two years, you had expenses when you purchased the condo and you'll have expenses when you sell it. Those expenses might offset the profit.

Keep in mind that broker's commissions, transfer taxes, recording fees, attorneys' fees and title company expenses all increased your basis in the condo.

Basis is the term that the IRS uses for what your condo cost you. You add all the expenses of purchase, sale and certain expenses while you lived there to come up with your basis.

If that basis is higher than your sales price, you owe no tax. If the basis is less than your sales price, you owe tax on the difference.