captial gains on tax deed property

[Bryan Freeman]

Let's say I buy a property at a tax sale (deed) for $1000. During the course of the next year and a half, I pay about $3000 in attorney fees for quiet title, survey, and the next year's taxes. After one year, I sell the property for $10,000.

Will I have to pay capital gains on $9000, $6000, or somewhere in between? This is my first one, so I'm not sure how it works.

[Bill Walston]

Originally posted by Bryan Freeman:

Will I have to pay capital gains on $9000, $6000, or somewhere in between? This is my first one, so I'm not sure how it works.

Most likely, somewhere in between. Your capital gain is the excess of your selling price over your cost basis (adjusted for improvements and selling expenses).

The attorney fees paid to get quiet title would be added to the cost basis. How you use the property during the year and a half would determine how your other expenses would be applied.