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Lev
Lev, Tax Advisor
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I have heard that there is a one time tax free capital gain.

Customer Question

I have heard that there is a one time tax free capital gain. My husband and his sister just sold their deceased mothers house. People have told my husband that if he has never had a capital gain that there is a one time tax free capital gain and he wont have to pay taxes on it. My question is, is this true? We live in the state of ohio. My husband and his sister owned the house.
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

You likely mean the old law

Before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older in additional could take a once-in-a-lifetime tax exemption of up to $125,000 in profits.

The Taxpayer Relief Act of 1997 replaced these options with a better one: you can make tax-free profits of $250,000 (or $500,000 if your filing status is married filing jointly) every time you sell a home if you owned and used it as a primary residence for at least two years out of last five years before the sale.

 

If the property was inherited - there is stepped-up basis - fair market price of the property at the time the decedent died - that means if the property to be sold shortly after - it is likely will not have any capital gain or a very little.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22845
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 6 years ago.

this house was not a prmary residence, so does this mean he has to pay taxes on it? He is 63 years old

Expert:  Lev replied 6 years ago.

Was the house received as a gift or as an inheritance?

When did he received the house?

Was it used as a rental property?

Customer: replied 6 years ago.

the house was bought byhim and his sister. It was a living trust.

May of 2007

No it was not used as rental property

Expert:  Lev replied 6 years ago.

So your husband and his sister purchased the house in May of 2007 - correct?

If so - the purchase price - assuming it was purchased at fair market value - is considered a basis.

The basis should be adjusted by purchase expenses and improvement expenses.

It is not clear how the property was used... - as a second home - I assume....?

The gain would be = (sale price) - (adjusted basis ) - (selling expenses).

 

If you provide more information - I may help you with estimation.

 

As the property was purchased a little more than a year ago - there should not be a large gain.

Based on information provided - that gain will be taxable at reduced rate - not more than 15%.

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Lev
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Taxes, Immigration, Labor Relations