Suze Orman is an Emmy
Award–winning TV host,
New York Times best-selling
author and motivational
speaker. She can be contacted
Orman will answer selected
questions in this column.
She regrets that unpublished
questions cannot be
Please include “Suze Orman
Q&A” in the subject line.
Q&A with Suze Orman
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Q I bought my house in ;;;; and paid ;;;,;;;
for it. Re;nanced it in ;;;; for ;;;;,;;;. If
I sell it, will I have to pay capital gains on the
;;;,;;; or the ;;;;,;;;?
—C.C., Las Vegas, Nevada
A Re;nancing does not a;ect whether you will
pay a federal capital gains tax when you sell your
home. When you sell a home, the capital gain
is the di;erence between what you paid for the
house—adjusted for any improvements you
made over the years—and the proceeds from
the sale, after paying the real estate commission. Your mortgage balance at the time of the
sale isn’t part of the gain calculation. (But to be
clear: Your net proceeds will be reduced by whatever remaining mortgage balance you must pay
o; when you sell the home.)
Even if you have a large capital gain, you
may still not owe any federal tax. The tax is levied on the amount of a home-sale gain that is
above ;;;;,;;; for individuals, or ;;;;,;;;
for married couples who ;le a joint tax return.
If your gain is below those amounts, you will not
owe federal tax. To qualify for this tax break you
must have lived in the house for two of the past
Let’s see how this might play out for you.
Your purchase price is ;;;,;;;. You can add to
that basis the cost of improvements you’ve made
to the house over the years. Improvements are
additions to the home or projects that prolong
the life of your home, such as adding a bathroom,
replacing your roof or upgrading the HVAC sys-
tem. Internal Revenue Service Publication ;;;,
Selling Your Home ( irs.gov/pub/irs-pdf/p;;;.
pdf), includes examples of allowable adjust-
ments. You must have records of the work that
was done and the amount you paid.
Let’s say you have made ;;;,;;; worth of
improvements over the years. Add that to your
;;;,;;; purchase price and your adjusted cost
basis is ;;;;,;;;. Next, let’s say you sell the
home and, after paying the sales commission,
you receive ;;;;,;;;. Subtracting the ;;;;,;;;
adjusted cost basis from ;;;;,;;; gives you a capital gain of ;;;;,;;;. If you are single, that means
;;;,;;; will be taxed as a capital gain (;;;;,;;;
minus the ;;;;,;;; exclusion). If you are married you will not have any tax bill, as ;;;;,;;; is
below the ;;;;,;;; capital gains tax exclusion.
Q I have a couple of credit cards I obtained
when I was having some ;nancial problems
and had a low credit rating. The problem is
they charge a yearly fee that I do not wish
to pay any longer. How can I close these
accounts that I no longer need or want without hurting my credit rating?
—D.N., Kansas City, Kansas
A The key factor you need to pay attention to is
your credit utilization ratio. The ratio is a calculation of what percentage of your total available
credit on all your cards you are currently using.
The lower your ratio, the better. For instance,
if the total credit limits on all of your cards is
;;;,;;; and your unpaid balances total ;;,;;;,
you have a credit utilization ratio of ;; percent
(;;,;;; out of ;;;,;;;). If you cancel a card with
a ;;,;;; credit limit, your utilization ratio will
rise to ;; percent (;;,;;; out of ;;;,;;;).
If the card(s) you keep don’t have unpaid
balances, you don’t have to worry about your
utilization ratio. However, if you do have unpaid
balances on the cards you keep, canceling other
cards can cause your utilization ratio to rise. One
workaround is to see if you qualify for a no-fee
credit card with a credit limit similar to the card
you intend to cancel. This only makes sense if
you know deep in your bones that you will only
use that card to make charges you can pay o; in
full each month.
Assuming you don’t plan to apply for a loan
in the near future, my advice is to cancel only one
card, then wait a few months to see if there has
been any impact on your credit score. If not, go
ahead and cancel the next card. C
Capital and credit
Handling financial gains and losses