User question: My brother and I have inherited my parent's Sun City home. They purchased it for approx. $87,000 in 1981. Prior to my Mom's passing in (7/2008), she had our names added to the deed. To pay for her care, we had to take out a home equity loan, on which we still owe ($80,000). Even though I have a home in Glendale, I lived exclusively with her for 3 years prior to her death as her caregiver. We are trying to sell her home for $145,000. Based on those #'s, how can I predict the amt. of capital gains tax? If we give it to a realtor, can we deduct their commission? On top of capital gains, will any profit be taxed again as personal income? EVen though the home is vacant since her death the Sun City board of dir. billed us for $2,300 for having our names added to the deed in 2005, but we are not allowed to use the S. C. Rec. facilities because it is not a primary residence for us.
Answer from blueroof.com: This case has joint ownership of the home by unmarried taxpayers. Each taxpayer should report gain or loss according to their particular situation. The daughter can exclude her portion of the gain under the $250,000 exclusion rules if she owns the home and lives in the home for 2 of the past 5 years, which appears to have been met. The son will not qualify for this treatment since he did not live in the house as a requirement to exclude gain on the sale of your primary residence.
Because the house was gifted to the kids prior to the death, the basis of the house to the giftee is the same as the giftors, which in the example is $87,000. In addition, all costs put into the house should be added to the basis. Each giftee would therefore have a tax basis equal to their respective ownership percentage of the house. The same would go for the selling price, each of the two giftees would report sale price at what the house ultimately sells for times their respective ownership percentage.
All costs of sale would be allocated the same way. The gain to the non-qualifing son would be long term capital gain, taxable at either 5% or 15% depending on the taxpayers tax bracket. There are no additional taxes due as a result of this transaction All of this could have been tax free if the house was gifted after the death of the parent as the basis of the house would have been steped up to its fair market value, which would have than been the basis of the asset to each of the giftees. Seeking the advice of a tax professional or legal counsel in advance can often save people money in the larger picture.
This information is based solely on the example from the details provided. I would have to see the actual transaction in order to provide assurance that the general advice provided is appropriate.
Designated Broker for Blue Roof Realty
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