Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Author: wbranson Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120801  
Subject: Gain on Selling House Date: 7/13/1999 11:09 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
My Dad owns a house with about a $500,000 current market value, and about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale from federal taxes? What about the $125,000 lifetime exemption? Does this still exist, or was it eliminated in the 1997 tax act, when the $500,000/$250,000 exemption was put in place? What about rolling a part of the gain into the basis of a new house? Does this option still exist? Does the new house have to cost more than the selling price of the house he sold?
Print the post Back To Top
Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17290 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 2:02 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
wbranson writes:

My Dad owns a house with about a $500,000 current market value, and about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale from federal taxes? What about the $125,000 lifetime exemption? Does this still exist, or was it eliminated in the 1997 tax act, when the $500,000/$250,000 exemption was put in place? What about rolling a part of the gain into the basis of a new house? Does this option still exist? Does the new house have to cost more than the selling price of the house he sold?


The $250,000/$500,000 exclusion on the sale of your main home applies in many cases. Since it appears he will have more than a $250,000 gain there will be some additional tests that must be met for the exclusion of upto $500,000 to apply (i.e. his status as a widower may have some relevance). The site below should be helpful in answering some of the specifics of your dad's situation.

http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p523toc.htm

Bob

Print the post Back To Top
Author: TaxService Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17291 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 6:06 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
My Dad owns a house with about a $500,000 current market value, and about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale from federal taxes? What about the $125,000 lifetime exemption? Does this still exist, or was it eliminated in the 1997 tax act, when the $500,000/$250,000 exemption was put in place? What about rolling a part of the gain into the basis of a new house? Does this option still exist? Does the new house have to cost more than the selling price of the house he sold?


***It is possible, but unlikely, that your dad's basis is only $25,000. I expect you are talking about your dad's primary residence. Has he considered improvements made over his year's of occupancy? Was the home owned by both of your parents? If so, when your mom passed away, your dad would have had an increased basis in the home. Depending on the value of the home, at the time of your mother's passing, quite a bit of the gain (perhaps all) could be wiped out.

The $125,000 exclusion has been replaced with the $250/500k exclusion (available more than once in a lifetime). The "rollover option" (deferral of gain) no longer exists and the cost of the new home as it relates to the selling price of an old home is no longer a factor.

If you have more info, or need more qualifiers, c'mon back 'n we'll try to do better!=:)

"Jack"

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: bytejockey One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17295 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 9:28 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
My Dad owns a house with about a $500,000 current market value, and about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale from federal taxes?


He could get married.

Or contact a real estate attorney and ask if a 1031 tax-free exchange might be useful.

Billy


Print the post Back To Top
Author: gmc123 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17306 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 1:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
The 125,000 lifetime exemption was eliminated with the 1997 tax laws. You also can't roll over the gain into a new house. If he sells for 500,000 and the basis is 25,000, he'll pay 20% of 225,000 or 45,000. That's less than 10% of the selling price. I think that's pretty fair. Of course, he can still use the expenses from buying and selling and capital improvements to decrease the actual gain.

Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17317 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 8:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
<<<My Dad owns a house with about a $500,000 current market value, and about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale from federal taxes?>>>

"He could get married.

Or contact a real estate attorney and ask if a 1031 tax-free exchange might be useful."

In addition to the other fine posts, especially the one about improvements and step-up on his spouse's prior death, not all of which I quoted, he could continue to own the house until the day he dies and pass it along by will and the inheritor would receive a stepped-up basis.

Regards, JAFO

Print the post Back To Top
Author: wbranson Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17338 of 120801
Subject: Re: Gain on Selling House Date: 7/14/1999 11:31 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks for your thoughts. Unfortunately, my mom was not on the deed at the time of her passing. The house had actually been transferred to her as sole owner in the 1970's, due to a concern about my Dad's creditors, and then sole ownership was transferred by her to my Dad about 3 years before her death, due to our concern that she might require nursing home care (which she did, about a year later). Therefore, I assume that my Dad gets no step up in basis.

The issue of basis vis a vis improvements made is worth another look, although there have been no significant improvements made since the early 1960's.

Let me know if you have any more ideas. Thanks for your help.

Print the post Back To Top
Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17349 of 120801
Subject: Re: Gain on Selling House Date: 7/15/1999 3:59 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
wbranson,

Don't overlook the possibility of taking the $500,000 exclusion. If your mom passed away this year and your dad files a joint return he may still be eligible for the $500,000 exclusion. The time your mom was in a licensed care facility counts towards the use test as long as the house was her primary residence at least one of the previous five years. Also, for the ownership test, since they were married your mom is considered to have owned the house even though she transferred title to your dad.

Based on the amount of potential tax (savings) involved you should probably consult with a tax advisor. For example gifts made within 3 years of death are usually included in the donors estate and therefore a step-up in basis may be available. Also whether or not he lives in a community property state may have some relevance.

Hope this helps.

Bob


Print the post Back To Top
Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17351 of 120801
Subject: Re: Gain on Selling House Date: 7/15/1999 4:29 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Correction of previous post.

For example gifts made within 3 years of death are usually included in the donors estate and therefore a step-up in basis may be available.

Should read:

For example gifts made within 3 years of death are not usually included in the donors estate and therefore a step-up in basis may not be available.

If there was a controlling interest (i.e. it was revocable) in the gift it might be includable in the estate.


Print the post Back To Top
Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17361 of 120801
Subject: Re: Gain on Selling House Date: 7/15/1999 7:45 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[My Dad owns a house with about a $500,000 current market value, and
about a $25,000 tax basis. He is a widower.

Is there any way he can shield more than $250,000 of the gain upon sale
from federal taxes?

He could get married.

Or contact a real estate attorney and ask if a 1031 tax-free exchange might be
useful.]]

Sorry, Billy...but a 1031 exchange won't work in this situation.

Remember that exchanges are tax deferred...not tax free. There is a BIG difference. And also remember that a 1031 exchange is only good for business or investment property...NOT for personal use property. Since the home is dad's personal residence, a 1031 exchange would not work.

But a good thought nonetheless.

TMF Taxes
Roy

Print the post Back To Top
Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17362 of 120801
Subject: Re: Gain on Selling House Date: 7/15/1999 7:47 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[Is there any way he can shield more than $250,000 of the gain upon sale from
federal taxes? What about the $125,000 lifetime exemption? Does this still exist,
or was it eliminated in the 1997 tax act, when the $500,000/$250,000
exemption was put in place? What about rolling a part of the gain into the basis
of a new house? Does this option still exist? Does the new house have to cost
more than the selling price of the house he sold?]]

For more information on the exclusion of the gain for a personal residence, see my multi-part post on that very issue in the Taxes FAQ area. You may find it interesting reading.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Don't be the LAST one on your block to own this masterpiece, since it's sellin' fast. Remember: It's never to early to start planning for your 1999 taxes. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Advertisement