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Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Parents bought residential property in Macon County, North

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Parents bought residential property in Macon County, North Carolina at cost of $12,500 10+ years ago. They are now going to sell to child at cost of $40,000. Will they be required to pay capital gains tax on this sell? They live in another state and now 79 & 75 yrs old. Will the law change between December 2009 and January 30, 2010?

Hello DHC,


I would need more information in order to answer your question.


1. Was this just vacant land or a home?


2. If it was a home, did your parents ever live in this home as their primary residence. If so, what were the dates?


2. If your parents did not live in the home, how was it used? Was it rental property?


3. What is the current fair market value of this home or land?



Customer: replied 6 years ago.

It was a second home. They used it as a second home (single wide trailer with half-basement, appx. 1 acre land). Fair market I believe is slightly above selling price, maybe $46,000. Don't have the papers in front of me.


Hello again DHC,


If this was not used as their primary home, then they will owe capital gains tax on any gain they have from the sale. Their gain would be calculated by taking the selling price less their basis. Their basis is what they originally paid for the home plus the cost of any improvements they may have made while they owned it.


If they made no improvements, then their gain would simply be $27,500 and this would be taxed as a long term capital gain which currently has a maximum tax rate of 15%. Depending on their total current income, part or all of that gain may actually qualify to be taxed at zero percent. If they are married and filing a joint return, if their other income for the year added to this gain of $27,500 does not exceed $67,900, then they would actually owe no tax on this sale. If their other income including this gain does exceed $67,900, then the part that exceeds the $67,900 would be subject to tax at a rate of 15%.


You asked if the law could change in January of 2010, and the answer is yes, it could. There are talks in Congress now to increase the capital gains tax rate and eliminate the provision for part of a gain to be taxed at zero. If the law is passed they could make it retroactive of January 1st, 2010, but there is no way to know for certain if that will happen.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you DHC



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