Sale and Purchase of Real Property
It is important to set forth all of the terms of a sale or purchase of real property in a contract. The purchase and sale of real property may also have tax consequences. When considering the sale of real property, most property owners seek tax advice to minimize capital gains on the sale. These capital gains arise since the property appreciates in value during its ownership. Basically, the property owner is going to realize capital gains on the difference between the fair market value (or sale value) and the cost of the property.
When the property is a personal residence, the owner is entitled to exclude $250,000 of gain ($500,000, if married) from the sale of the property. At times when the market is strong, these gains can be substantial. However, when the housing market is declining, the property owners may be realizing a loss on the property. This loss occurs when the owner purchases the property for a greater amount than the sales price.