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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7428
Experience:  15years with H & R Block. Divisional leader, Instructor
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My elderly mother owns a home in Puerto Rico which she would

Resolved Question:

My elderly mother owns a home in Puerto Rico which she would prefer to sell while still living at $40,000 below market value. If she doesn't sell now my brother and I will inherit the house and will need to sell it after her passing. We both reside in the States and have no plans of moving to PR. What are the tax consequences of ownership selling versus inheritance selling? I understand both my brother and I would have to pay 20% capital gains tax each to PR. Do we need to pay a State capital gains tax too? What about inheritance tax? If my mom sells the house is it correct that she will only need to pay capital gains at a 10% rate?
Submitted: 11 months ago.
Category: Tax
Expert:  Robin D. replied 11 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.

Robin D. :

If your mother leaves the home to you and your brother then you will be taxed on any gain but your gains would be the difference in sale proice (less cost of sell) and your basis (fair market value on your mother's date of death).

Robin D. :

Because of this step up in value and a sale that is close after inheriting, there is not always a gain to pay tax on.

Robin D. :

States do have tax to pay but each is different and many just start with Federal income and tax on a regular rate.

Robin D. :

You would not pay an inheritance tax. One because of the dollar amount and two because the property is not subject to that.

Robin D. :

If your mother sells and she has been using as her main residence she may have exclusion that would apply. If she has not then she would be taxed on her gain.
In PR earnings of nonresident individuals from the sale of a property are subject to a withholding tax of 25%, which is levied on the gross selling price. If you held for longer then 6 months then it drops to 20%.

Robin D. :

It may be more beneficial for your mother to dispose of the property if she no longer wants it.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer: Let me make sure I understand. My brother and I would pay 20% capital gains tax each on the gross sale price after we hold it for six months but no inheritance tax to the State we live in?
Robin D. :

Your state would not have an inheritance tax on the property because the property is not in your state (and I am assuming your mother is not resident there either).

Robin D. :

Most states did away with inheritance tax

Robin D. :

and

Robin D. :

the estate pays any inheritance tax.

Customer: appears we are better off if my mother sells even if it is
Robin D. :

Probably, the 20% is withheld in PR on the total sells price if you are not a resident so she would most likely be better to sale

Robin D. :

I really enjoyed working with you – please feel free to request me again when you come back to ask another question.
You will find the request feature when you come back under your MY QUESTIONS section.


 

Robin D. :

I sincerely XXXXX XXXXX CHAT was helpful.

Robin D. :

Your positive rating is always thanks enough.

Robin D. :

DId you have another question about this sale?

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7428
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 4 other Tax Specialists are ready to help you
Expert:  Robin D. replied 11 months ago.
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