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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10098
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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IN 2010 I SOLD MY HOUSE IN GEORGIA TO MY DAUGHTER BECAUSE I

Customer Question

IN 2010 I SOLD MY HOUSE IN GEORGIA TO MY DAUGHTER BECAUSE I WAS IN A FINANCIAL CRUNCH, THE CONTRACT SALE PRICE WAS $125,000, I GAVE HER A GIFT EQUITY OF $25,000, I HAVE BEEN LIVING IN THE HOUSE AND PAID ALL
THE PAYMENTS AND NOW I AM READY TO MOVE TO A SENIOR LIVING CENTER AND WANT TO SELL THE HOUSE, SHE WAS LIVING WITH ME AT THE TIME AND STAYED IN THE HOUSE WITH ME AFTER SHE BOUGHT IT UNTIL MAY 2012, (ALMOST 2 YEARS)
WHEN AT THAT TIME SHE REMARRIED AND BOUGHT THE HOUSE SHE IS LIVING IN NOW. OF COURSE I WILL BE PAYING ALL THE COST THAT WILL BE INCURRED FROM THE SALE OF THE HOUSE, FOR THIS REASON I NEED TO KNOW WHAT IT WILL
COST HER IN TAXES, THE ASKING PRICE FOR THE HOUSE NOW WILL BE IN THE NEIGHBORHOOD OF 140,000.
THANKS IN ADVANCE FOR YOUR HELP
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi.

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The capital gain will be the net sales price (we'll use the full 140 for assumption purposes, even though, as you mentioned, there will be some reductin to that for selling costs) minus her basis in the house.

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Basis is normally purchase price plus improvements.

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But on the portion of her basis in the home that was gifted she must take what's called "carry-over" basis.

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So her basis in the house is 100,000 plus (rather than 25,000) 25/100 of your basis on the property.

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Let's say that your basis in the property (we'll assume no imporvements for now) was your original purchase price of 75,000.

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Her basis would then be 100,000 + (25/100 X 75000) = 118750 ... rather then the full contract price of 125,000.

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(gifts of equity always increase the eventual gain when the receiver of that gift sells the asset)

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SO, at a sales price of 140,000 the gain would be 140,000 - 118750 = 21250

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Becasue she held for more than a year, she will get the lower long-term capitl gains rate (which is DEPENDANT on her TAXABLE INCOME for the year) ... that capital gain being a PART OF the taxable income for that year.

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Now, long-term gains and qualified dividends taxed at

  • 0% if taxable income falls in the 10% or 15% marginal tax brackets
  • 15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
  • 20% if taxable income falls in the 39.6% marginal tax bracket

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SO, lets say that her and her husbands OTHER taxable income for that year (and remember taxable income is not gross income ... it has the standard or itemized deduction plus two personal exemptions take out of the gross income) is 74,900

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As you can see from the tax brackets below, that gain of 21250 would have them squarely in the middle of the 25% bracket.

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2015 Ordinary Tax Rates for Married Filing Jointly and Qualifying Widow or Widower Filing Status
[Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]

If taxable income isabcdefg

overbut not overTaxable incomeMinusSubtract (b) from (a)Multiplication amountMultiply (c) by (d)Additional AmountAdd (e) and (f)

$0 to $18,450 $0 × 10%

18,450 to 74,900 18,450 × 15%

74,900 to 151,200 74,900 × 25%

151,200 to 230,450 151,200 × 28%

230,450 to 411,500 230,450 × 33%

411,500 to464,850 411,500 × 35%

464,850 and above × 39.6%

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So the tax on the gain itself would be 15% (.15 x 21250) = $3187.50

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However, if the gain plus the other household taxable income is below $74,900 (as you can see from the tax table above) there would be zero taxable gain, becasue their total taxable income would in the 10 to 15% ordinatu income tax brackets (for wich the capital gains tax rate is zero)

...

Lane

.

Expert:  Lane replied 1 year ago.

Hi,

….

I'm just checking back in to see how things are going.

….

Did my answer help?

….

Let me know…

….

Lane

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