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Financial Planning / Tax Strategies
|Subject: Re: Selling Home--Tax Hit Avoidance Needed!||Date: 9/28/2000 5:57 PM|
|Author: v1nc1tr1x||Number: 40403 of 121252|
You definitely should talk to a professional. You may have received a gift from the relative when s/he made you co-owner, and if s/he died and left you the property, that inheritance would also give you some 'tax basis' in the property. You'll want to know whether a gift was reported originally (to the IRS), and if so, what value was shown for the gift. And if the relative's estate filed an estate tax return, that would show a value for the interest in the house which passed to you on his/her death. (If nothing was reported to the tax authorities, the situation gets a little murkier, but a professional can help you figure out a reasonable position to take.)
The reason you care about the past is that to the extent you have tax basis in the house, you don't have 'gain' on sale. (A simple example: I buy a house for $100,000 and later sell it for $150,000 -- my taxable gain is $50,000, not $150,000. Here, your 'basis' in the property will reflect the circumstances in which you received it -- a gift and a bequest, it appears.) So if your basis in the house is $200,000, you'd only recognize gain of $35,000 if you sell the house for $235,000. And the tax rate on capital gains is only 20%... historically (and worldwide) a very reasonable rate.
The other reason you need a professional is to make sure you take advantage of all tax rules that might help you, as well as fulfill your obligations under law. For example, you may need to make estimated tax payments reflecting the gain from selling the house. Also, if you're in business for yourself (as the remark about the Subway franchise suggests), you probably should consider working with a professional to do your annual income taxes anyway.
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