Q: I bought my current house in July 2005. For many reasons, including having to take care of my mother, I need to sell this house and buy one that is next to where my mother lives.

This house cost $95,000, although the mortgage amount is only $65,000. The new house costs $60,000.

Is there any way I can get out of paying capital gains on the property? It doesn’t seem that I can trade one house for another unless the $20,000 worth of work that needs to be done on the new house I plan to buy qualifies. The new house is over 100 years old.

A: I think you’re confused about how profits on the sale of a home are calculated.

First, if you bought the house for $95,000 and you sell it for $95,000, you won’t make any money. In fact, you’ll probably lose money, because there are several costs of sale, including an agent’s commission (if you use one), transfer taxes, escrow fees and other expenses. You could probably sell your current property for $100,000 or even $105,000 and still come out without any profits.
Your cost basis for the property is calculated by adding the costs of purchasing the home to the costs of sale plus the costs of any capital improvements. Then, subtract the cost basis from the sales price.

The difference between what you paid for the home and what percent you financed are irrelevant.

If your new houses costs $65,000 and you can put down $20,000, you’ll only need a mortgage of $45,000. While it’s more difficult to get financing if you’re borrowing less than $50,000, it’s not impossible. Talk to a local lender about using a home equity loan if they are unwilling to give you a primary mortgage for that amount.

I’m sorry that your mom has physical challenges that require you to help her out, but it sounds as though you’ll come out of this house sale just fine.