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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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how does my father avoid a massive capital gain , he rents

Customer Question

how does my father avoid a massive capital gain , he rents an apartment sold his home five years ago and his business 2 1/2 years ago didnt do anything with the money except pay his rent now he is looking to purchase a new home and is worried about the 2007 capital gain on that money
Submitted: 8 years ago.
Category: Tax
Expert:  Ed Johnson replied 8 years ago.

Dear Jonny,

 

Thanks for your question.

 

I am confused a bit by your dates. I can answer this, but I need some clarification.

 

Can you tell me this:

 

On what date did he sell the home? Did he report the home sale on his taxes when he sold that?

 

When you say he rents an apartment, do you mean he lives in an apartment, or he has an apartment he rents out for income?

 

you mentio a business form 2 and 1/2 years ago. Is this what he sold now? and what was the date he sold it?

 

Is it the home or the business sales that he wants to protect from capital gains.?

 

What kind of business was it?

Customer: replied 8 years ago.
they sold thier home in 2003 for 740000 the payoff of that loan was around 450000 then the business which he inheritated from his father but had to rebuild from the la riots in 1992 ? 1994? something like that , he got a loan from the sba at a low interest but reguardless the property sold in 2005 or 2006 my dad financed it and recieves 2500.00 a month and 25000.00 yearly one time every year , he lost his business and was forced to sell , because of his age as well my mom is currently on state disability and they rent an apartment in hollywood for 2800.00 a month
Expert:  Ed Johnson replied 8 years ago.

Dea jonny,

 

Thank you. I need to make sure I understand the situation before I answer so that I give you the correct information. do not worry, these back and forth answers and questions do not affect pricing. it is included in the one price.

 

Your patience is appreciated.

 

I understand that he sold his home in 2003, for seven hundred forty thousand dollars (740,000 dollars). did he report the sale on his income tax for that year?

 

I also understand that he sold his business in 2005 or 2006? ANd this is the property for which you are concerned with the capital gains tax. Is this correct?

 

You indicate your father financed the business and receives 2,500 dollars a month plus 25,000 dollars one time a year. Do i understand correctly that this is a payment for the business? Did he sell the business on an installment loan to the buyer?

 

 

Customer: replied 8 years ago.
yes he reported the sale of his home and yes he financed the buyer of his business my concern is the gain for the sale of his business yes an installment loan thats correct
Expert:  Ed Johnson replied 8 years ago.

dearCustomer

 

Thank you for the additional information. I can address this issue now.

 

So the home is not what we have to be concerened with. that is good.

 

With the information you have given, I can not provide a perfect solution. The perfect solution would have been to transfer the business to a trust, and have the trust sell the property. Ther would still have been capital gains, but the trust would have paid it. Set up as a charitable remainder trust. See a descripiton here:

 

http://estate.findlaw.com/estate-planning/trusts/trusts-charitable-trusts.html

 

It is not to late to see a trust attonrey to see about transfering the sell contract into trust and letting them receive the balance of payments.

 

for now, for the past year, the best he can do is file his taxes for a installment sell. This defers tax on the unpaid balance. IN otherwards he only pays capital gains tax as he gets paid for the installments.

 

He would file taxes using the following form: http://www.irs.gov/pub/irs-pdf/f6252.pdf

 

So that he does not get his taxes mixed up, he neesd to use the form for the correct date. You can get the prior year forms at: http://www.irs.gov/formspubs/article/0,,id=98339,00.html

 

I recommend using Turbo Tax for the appropraite year to do the taxes. These are still for sell for as far as 5 years back.

 

http://turbotax.intuit.com/personal-taxes/past-years-products.jsp

 

 

 

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