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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4068
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My husband died 4 years ago, leaving no formal will. Luckily

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My husband died 4 years ago, leaving no formal will. Luckily everything was in both our names. After several TIA's (small strokes) My children and I came back to WV from Arkansas. I have finally put the small ranch we owned in AR up for sale. The bid I agreed to for $50,000 fell through, but the realtor has had lots of people looking.Of the $50,000 about $4000 goes to him ; $10,500 pays off the mortage ; I would like to gift our 3 sons 27, 11&13 with $5000 each from their father. The youngsters moneys would go into trust until age 21. These boys are special needs. (Autism ) Their older brother would be custodian of their funds. That leaves me with $20,500 total profit, it will take at least 1 year to clean up all the debts and collections Billy's 3 year illness left me with and about $10.000. What do I owe the gov. And how long do I have to reinvest?
Submitted: 3 years ago.
Category: Tax
Expert:  Stephen G. replied 3 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

How did you acquire the house & how much did you pay for it?

Stephen E. Grizey :

When did you move back to West Virginia?

Stephen E. Grizey :

What was your husband's date of death & how much do you think the house was worth then? More than you can sell it for now?

Customer:

It was my husbands when we married 18 years ago. 3 years ago after my strokes June 21, 2007 at the time the property was worth about $65000 but due to break ins and neglect my realtor has it listed for $59000

Stephen E. Grizey :

Did you make any major improvements to the property? Where did the mortgage come from?

Customer:

We moved from the single wide trailor to a 3 br/2ba United bilt Home . thats where the mtg. came from.

Stephen E. Grizey :

What was the actual approximate date that you moved away from AR?

Customer:

Sept 1 2008

Stephen E. Grizey :

So do you mean your husband had the single wide trailer when you got married & then you moved to the 3 b/r 2 ba home? When you did that you sold the trailer, took out a mortgage & bought the home together? if so how much was the home ie. what did it cost?

Customer:

The single wide is still there, he lived in it when we were married. The mtg. is still in both names. $59,000

Stephen E. Grizey :

Are you saying the ranch cost $59,000.?

Customer:

The land was a gift to him 25 years ago from his father---19+ acres single wide , house, 10 horse barn, 8 acre pasture, 11 wooded and a large pond. BUT sales are terrible in AR.

Stephen E. Grizey :

The old residence replacement rules have been repealed. So that leaves you with trying to qualify for the new exclusion or even better (for income tax purposes) to have no gain on the sale;

Stephen E. Grizey :

So you're trying to sell all that for $50,000. Is that right?

Stephen E. Grizey :

What was done with the mortgage money or was the mortgage on the property when it was gifted to him?

Customer:

I'd love 55 but I don"t expect it

Customer:

The house and 5 acres was the mtg.

Customer:

They used 5 acres as collateral

Customer:

The property was free and clear when we built the house

Stephen E. Grizey :

The general rule for the personal residence exclusion is that (in your case) if you owned and lived in the premises for 2 out of the last 5 years, ending on the date of sale, you can exclude up to $250,000. of gain from taxable income. So, for example, if you sell the property by September 1, 2012; the five years are the years ending 2008, 2009, 2010, 2011, 2012 & you have only occcupied the property as your principal residence for 1 out of the preceeding 5 years. That doesn't qualify for the exclusion.

Stephen E. Grizey :

Where are you living now?

Stephen E. Grizey :

So why I am asking all these questions is to try & determine if you have any taxable gain at all in the first place.

Customer:

WV in a rental

Stephen E. Grizey :

How much was the mortgage orginally that you used to build the house?

Customer:

59,000

Stephen E. Grizey :

OK, so you spent 59,000 just to build the house. That means you have no gain to worry anout.

Customer:

thanks Buddy

Stephen E. Grizey :

Technically, 1/2 of the house would get its tax basis from 50% of the Fair market value at your husband's date of death, or 1/2 of let's say 60,000. is 30,000. The other half would come from your tax basis for your 50% of the house which would go back to the original cost + improvements or if it was only 59,000. then 1/2 of that is $29,500. so your total tax basis is $59,500. & you actually have a loss on the sale.

Stephen E. Grizey :

So you don't need to worry about qualifying for the residence exclusion.

Customer:

I know but I have to do something. Rent here is 700 house payment there is 400 my income is only 1900 and the boys and I are drownding.

Stephen E. Grizey :

Sure. i understand. It has nothing to do with keeping the property. When you sell it you have no taxes to pay & that was your original question.

Customer:

Thank you again. CCM

Stephen E. Grizey :

I'd think twice about giving anyone any money in your circumstances; you need all the reserves you can muster; if after a year or so you feel you can do something, then go ahead, perhaps in a smaller amount & then add to it in another year if you can afford it.

Stephen E. Grizey :

Please remember to ACCEPT; it is the only way we get credit for our work. Feedback, if you have time, and bonuses where you think they are warranted, are always most appreciated. I'll be happy to answer any follow-up questions you may have.

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4068
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 4 other Tax Specialists are ready to help you

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