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Thought I'd share a tax story that actually happened last month.

We have a second home on the N. Oregon Coast and like so many other residential communities, have seen property values blow up thru the roof. We have no interest in selling, but our neighbor also has a second home not far from ours, with easy access to the beach and hiking trails. A couple of months ago, she (a widower) decided to sell her 1,100 sq ft 2 BR 1 BA house she's owned when she and her husband (deceased 1998) bought it for $35,000 in 1982. She will be moving into a CCRC with a large admission fee that she can only raise by selling this second home.

She thought the house might sell for $250K - $300K, based on her memory of historic prices. She was flabbergasted when the listing agent told her to put the house on the market for $600K as a 'starting point'. Huh? Well, she did and within 10 days she had multiple bidders with the final 'winning bid' of $750K!! So the second week of January, escrow closed and they transferred $710K to her savings account. She was incredulous! She always lived a modest life and never dreamed of actually having that much money!

This amount not only easily funded her CCRC fee, but provided enough extra to fund a list of things she mentioned, including travel cruises she had only dreamed of, season tickets to the symphony, a new Cadillac (or equivalent) and so on. But ever being the scrooge, I politely asked....'have you considered taxes'? What....taxes? she asked. She hadn't. So she asked if I could help her estimate what those might be.

Here are my estimates.

Taxable capital gain: $632,000 (Adjusted selling price minus adjusted basis)

Federal tax on gain:.........$117,400
OR state tax on gain:.........$60,300
Net Inv Income Tax:...........$19,100
IRMAA Part B and D increase....$5,833 (2024)

Total tax....................$202,633 (~29% of proceeds)

She was shocked. There's still plenty to cover the CCRC one-time cost, but she'll have to curtail several of the other pleasures she had hoped for.

Unfortunately, this lady has 3 strikes going against her. She's filing single, this is not a principal residence and this is happening in Oregon (a high tax state). Just for a comparison for my curiosity (I haven't shown her), I recalculated using the same dollar values, but assuming this happened in no income tax WA state (where we live), she's married and it was a principal residence. Under those conditions, the total tax bill would drop to about $15,455!

Now, I told her mine is only an estimate and she needs to visit a CPA (I recommended a couple I know) to get the accurate numbers and to plan for how the taxes will be paid.

Just a tax story some may find interesting and perhaps helpful to them

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