If you did not pay for your home do you pay capital gains when you sell?

Answer 1

I assume you mean it was a gift or inheritance?

You calculate your capital gain by subtracting the adjusted basis from the net sales price and if that's a profit, you pay tax. If you lived in the house and owned it for at least two of the previous five years, the first $250,000 of profit is tax-free ($500,000 if married filing jointly and your spouse also lived there for two years).

Your basis is determined differently depending on whether it was a gift or inheritance and, in the case of gifts, depending on whether the house was worth more or less on the date of the gift than the donor paid for it.

If you have recently received a gift of a house, in order to properly calculate your taxes you should obtain the donor's records before the donor throws them away. You will need to know how much the donor paid for the house and how much he paid for capital improvements while he owned it. If you don't get these records, you will overpay your taxes when you sell. You will also need to get an appraisal done of the value of the house as of the gift date. Don't put off getting the appraisal. Getting one ten or twenty years from now will be really expensive.

If you inherited the house, you will need an appraisal of the value of the house as of the date of death and to find out if any estate taxes were paid. If an estate tax return was filed, the executor probably already had one done. If not, you should get a "retroactive" appraisal from a licensed appraisor.