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On your inherited land, you may not have a large tax liability
Your capital gain would be the difference between fair market value on the date of the death of who you inherited it from and your sales price
If the inheritance is fairly recent, you may not have a tax liability at all on the sale of the vacant land
The property was transferred into my husbands name before his fathers death but meant as an inheritance
his mother is still alive
Okay then your basis is equal to your father's basis
so I think legally a transfer and not an inheritance for tax purposes
OK, basically about $2000 basis then
No, it's not...but your basis would be equal to the basis in the property at the time of the transfer
His father paid about $2000 for the land 30+ years ago
Yes, then that's the basis
OK, that was our understanding
Your capital gain will be 15% of the amount of the sales price above $20,000
Oh, the land was purchased for $2,000
I thought you said $20,000
Yes, purchased for $2,000
Wow he got a good deal
Yep, now worth about $220,000
Unfortuantely, if he would have waited until his death to transfer then your basis would have been the basis on the date of death but now the basis is $2,000
may have been over 40 yrs ago
But are we understanding correctly that if we take a $45,000 loss on the rental sale, it offsets the gain on the empty lot?
and we pay 15% of the overall gain
Yes, if you take a loss on the rental that will offset some of your gain
Ok, what are your thoughts on keeping the lake lot as a long term investment even if it is causing us short term financial stress?
And yes, there is no depreciation recapture on the rental because you are selling at a loss, and you pay 15% on the gain, provided your income is not above $400K per year
or the lack of cash flow is causing us stress
I don't know enough about the real estate market in that area to comment. It's a matter of preference
If you can hold the land, it should appreciate if it is waterfront land
But I wouldn't put yourself in a bad financial position
just in hopes of appreciation
just trying to decide if we have any other questions
hang on a second
Do you know if there are any specialists on Just Answer that might be able to comment on land investment vs other vehicles?
investment vehicles I mean
Right now, if you are going to sell, is the best time
When interest rates head back up, selling prices will fall
You probably have a good year
thats what we are thinking
Interest rates are at about 4.6% or so, as high as its been since 2006 and going upward. People are snatching up what they want
I looked at some real estate that I wanted, and it sold before I could decide whether or not to buy!
It's a seller's market right now.
People are paying more than asking price
Thank you for your positive rating. Please come back and ask me if you need any other finance guidance. It was a pleasure working with you tonight. I wish you the best of luck in the sale of your real estate.
Just another question I thought of. Do we pay capitals gains just to the feds, or also to the state of MN where the property is and the state of OR where we live?
Do you know where we find the MN capital gains tax rates?
So am I reading it correctly that we could avoid paying fed capital gains if we keep our tax bracket at 15% ?
We could do that easily by putting our entire paycheck into 401K and regular IRA contributions
So just confirming, our best tax strategy would be to dump a bunch of money into 401K and pre-tax IRA to bring our taxable income below $72,500
And yes, I will give you a huge tip if this is the case cause it will save us a bunch of money
Totally forgot to ask - this is just our salary income that we need to keep below $72,500 right? Not that income plus the income from selling the property?
Does that also affect our tax bracket for regular taxes?
When do we pay the capital gains tax? With regular taxes, or as estimated tax?
No penalty then for waiting until April 2014 to pay?