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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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I have a few tax questions: I have owned a second home for

Resolved Question:

I have a few tax questions: I have owned a second home for about 25 years ( Pennsylvania). It was deeded to me by my parents for $1.00.My mom lived in it rent free but moved into a nursing home. I have it up for sale.
First question: Do I pay a capital gains tax? Fair Market value is about$78,000 and selling price will be about $90,000. How much tax and I assume payable when I file my taxes?
Second Question:Is there any inheritance tax payable? If so, how much? When would I have to pay it?
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  Jax Tax replied 2 years ago.

Jax Tax : First, yes there is going to be capital gains. The gain will be the difference in your basis and the selling price. The basis calculation is going to be tricky.
Jax Tax : First, it was deeded for a dollar which is effectively a gift assuming the deed value of $1 is also what was initially paid for it. If you all three owned 1/3 then your individual basis started at 33 cents each.
Jax Tax : X that.
Jax Tax : Your basis did not start at a dollar. Your basis each would have transferee from the donor. Each of your basis would be 1/3 of what the donor's basis was.
Jax Tax : How do you figure that out? You either know or you don't. If you don't, then it is zero.
Jax Tax : Then your father dies. Who ever took his portion got a step up in basis on his 1/3. If split the 1/6 each.
Jax Tax : The basis in that portion then became the fair market value of that 1/3 on the date of death. The remaining amount 2/3 stayed as it initially was.
Jax Tax : So now when it is sold, you each (two of you) must file the portion you now own on your own schedule D. You report your percentage of the sale against your basis. The difference is long term capital gain.
Customer:

I guess I'm a little lost. My wife and I bought the house in 1971 for $20,000. My Mom and Dad bought it from us in 1977 for $38,000. They deeded it back to us in 1987 for $1.00. My father is dead and my mother moved out. What's the capital gain?

Expert:  Jax Tax replied 2 years ago.
That clears it up. Your basis is $38k. The difference in this and the sale price is gain. This is your parents purchase price basis since they gifted it to you.
Customer: replied 2 years ago.
What is the capital gain rate in Pa? 15%? Also, what about inheritance tax? is there any?
Expert:  Jax Tax replied 2 years ago.
There is no inheritance tax in the US. Give me a second on the PA tax rate.
Expert:  Jax Tax replied 2 years ago.
The PA tax rate is 3.07%. The federal tax rate varies based on your income tax bracket. It is 10% and the lowest bracket which the sell alone takes you out of and 20% in all others. So, you are at 20%.
Keep in mind, you can add to your basis any improvement costs and costs associated with making large repairs or additions that extended the useful life of the home and added to its value. Those things that are more than simple repairs that bring it back to par.
Customer: replied 2 years ago.

Wow! 20% federal? Sounds high! I assume, then,Ican add to the basis with things like a new furnace and AC?

 

Are you sure about inheritance tax? My attorney said I may have to pay 4.5% which sounds crazy on something I already own.

Expert:  Jax Tax replied 2 years ago.
Those are proper additions.
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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