When you sell a stock, you owe taxes on your gain—the difference between what you paid for the stock andwhat you sold it for. The same is true with selling a home (or a second home), but there are some special considerations.

How to Calculate Gain

In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:

1. Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing.

2. Add adjustments:

§         Cost of the purchase—including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.

• Cost of sale—including inspections, attorney’s fee, real estate commission, and money you spent to fix up your home just prior to sale.
• Cost of improvements—including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace. 

3. The total of this is the adjusted cost basis of your home.

4. Subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain.

A Special Real Estate Exemption for Capital Gains

Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:

• You have lived in the home as your principal residence for two out of the last five years.
• You have not sold or exchanged another home during the two years preceding the sale. 

Also note that as of 2003, you also may qualify for this exemption if you meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.

There are plenty of home buyers who intend on buying while they can still lock in a relatively low mortgage rate. The first step is to start thinking like a buyer, not a seller. Although buyers are anxious to buy before rates rise further, they know that the appreciation rate is subsiding compared to last year.

For this reason, pricing is more important than ever, as is property condition. Buyers are less forgiving of defects. So, ideally, you should fix defects before you put your home on the market. Even if you're marketing your home as a "fixer-upper," it should be clean and clutter-free.

Listings are most salable when they're new on the market. To maximize your chances, your home not only needs to be priced right and properly prepared for sale, you also need a good marketing plan. You want to make sure that information about your listing reaches as many potential buyers as possible. A listing agent should provide you with a marketing plan. Make sure that your home will receive Internet exposure. Over 85 percent of today's home buyers start their home searches on the Internet, and your home should have internet curb appeal. Your online campaign should be rich with information and photos.

"First impressions are no longer formed curbside from a motor vehicle, the Internet browser is the vehicle and the curbside view is replaced by what [consumers] see online.”

Are you offering a Home Protection Plan? A Home Protection Plan covers many of the important systems that can and do break down during the buyer's first year of ownership. It stands to reason your home will have a competitive advantage when it includes a protection plan. Today's buyers are picky. Give them something extra. Grab their attention.

Today's buyers are tough but every market offers opportunity. Seek your real estate professional's advice. Put together a marketing program and act on it. Properly priced, packaged and presented homes are selling. Yours will sell too!