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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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my Mom will sell 60 acreas for $12500 acre that her and my

Resolved Question:

my Mom will sell 60 acreas for $12500 acre that her and my Dad paid $2500 for about 15 years ago. It includes their house. What is the tax liability? How is it calculated?
Submitted: 10 months ago.
Category: Tax
Expert:  Megan C replied 10 months ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

Your mom will pay tax on the difference between the sales price of the land and house and what she paid for it. She will be able to exclude $250,000 of gain because it is her primary residence.

Customer :

I was afraid of that. She is 78 and may not live too long. Is there a way to pass ownership on to avoid taxes and turn it into an inheritance to reduce taxes?

Megan C :

She can include in her basis the cost of land, plus the cost to build her house. She can also add to the basis any major repairs she had over the years, such as adding a new roof, etc

Customer :

Ok - thanks

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12488
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 5 other Tax Specialists are ready to help you
Expert:  Megan C replied 10 months ago.

John,

You mentioned if your mother can gift the house or do anything to avoid taxes. You would be better off from a tax perspective if you inherited the property after her death. You would receive a step-up basis in the home and land, equal to fair market value at the date of death. If she gifts it during her life, your basis is equal to her basis. Inheriting the property will save money on capital gains tax

 

Also, I didn't catch the caveat that your father passed away. When this happened, your mother got a basis equal to 1/2 of the cost of the land/house and the other 1/2 being the fair market value at the date of the death of your father. So, with the cost of land being flat, you would have a basis in each acre of $7,500. This is $1,250 being the cost basis of your mother's half and $6,250 being the fair market value at the date of your father's death. IF you do the calculation, with the exclusion, your mother's gain would be minimal. I'm sorry I didn't catch that while we were in chat.

 

You can CLICK HERE to read about step up basis.

 

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