Federal Income Taxes

When a property is sold, the IRS looks at the "Amount Realized" to determine the tax consequences. The amount realized is essentially the total sale price minus the costs of the sale (like broker commissions and closing fees). To find out if the seller made a profit, you subtract the property's "Adjusted Basis" (the original purchase price plus the cost of improvements minus any depreciation taken) from the amount realized. If the result is positive, it is a Capital Gain, which is taxable income. If the result is negative, it is a Capital Loss, which may be deductible depending on the type of property.