Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (23) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121323  
Subject: Re: S.O.S. MOTLEY FOOL STAFF Date: 12/26/2004 12:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 27
BIG QUESTION:

I will do my best to describe this in as few a words as possible.

Wife and I - inherited 80 acres, built house on 2 acres for cost of about $280,000

80 acres was given to us over a 4 year period as a gift equalling $160,000. (Tax exempted because $20,000 given to spouse and $20,000 given to me each year - $40,000 per year for 4 years)


First question...did you INHERIT this land or did you receive it as a GIFT? The difference between these two is paramount to the answer. If you inherited it (that is, you received it upon someone's death), you would use the assessed valuation as of the date of death as your starting cost basis. If, as you seem to indicate, it was received as a gift, your starting cost basis is the cost basis of the person who gave you the gift, not the value on the date your received the gift. This is probably NOT $2000 per acre but an even smaller value.

Question: How to dodge taxes on gains if property sold.

Generally you can't.

New appraised property value: $10,000 / acre -
but given to us at a value of $2,000 / acre
Difference of $8,000 per acre if sold - (We would have to pay taxes on this $8,000 right?)


Wrong. You would have to pay taxes on the difference between $10,000 and the actual cost basis (not the value) of the person who gave you the property.

How can we dodge paying these taxes?

Generally, you can't.

An idea:

Could house be used as a leverage? In other words, if we have lived in the house for 2 years could we sell house along with so many extra acres of land (that could be further subdivided by purchaser) but included in house sell to allow upto $500,000 gain for spouse and me but pay no capital gains? (ps: We don't want to sell our house. Is there a way to do it on paper somehow to dodge taxes, and then get it back in a completely legal manner?


Cost of house will add to your basis in the property. If you sell the entire property (or a portion of the property including the house) you can exclude up to $500K of gain on that portion of the property sold if you've owned and lived in the house for at least 2 years.

Or is there another way to sell the property without selling our house to avoid capital gains?

Stop complaining. If you sell 79 acres at $10K/acre (keeping 1 acre around the house), the most you will be paying in taxes is $118,500 on sales proceeds of $790K. You should be grateful to the person who was so generous in the first place.

Ira

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (23) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Berkshire Hathaway

IBM: Is Buffett Wrong, or Brilliant?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement