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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10131
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My father is 91 and in a hospice facility; private pay. He

Customer Question

Hello, My father is 91 and in a hospice facility; private pay. He is widowed. He owns his home outright; maybe $385,000. His other assets are stocks, now down to about $47,000. He otherwise lives on $1400 soc sec. He has about $20,000 in his bank account. The money is draining quickly due to the cost of the facility, but clearly he has enough to continue this help.
We are looking to sell his home in case his stocks run out. Some family say to sell house first and protect stocks (giving them a chance to grow); others say to sell stocks and wait on house (their theory is there will less inheritance tax than capital gains tax). Obviously, if my father needs the money, all will be liquidated to continue the help he needs.
My question: what is the tax rate of capital gains for him? Is it so substantial, that selling his house (unless we just have to) is a bad idea.....so we should stick with selling the stocks (at about 18% fed/state tax)? Trying to make good financial decisions to protect my dad and his assets and certainly, want the best for the rest of the family. Thanks so much.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi

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Under IRC § 102, fir a single filer there in a complete exclusion of capital gain on sale, (of up to 250,000 for a single filer) if he has lived in the house in any 24 months during the 5 years prior to sale.

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Si if that's the case then you'd need to subtract 250,000 from the gain before calculating the tax effect.

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Then long term capital gains are taxed at the lower Long Term capital gain rate ... which is driven by his taxable income bracket.

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LT Capital gains are 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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Would he pass the primary residence test? (lived in the house for any 24 months out of the past five years)?

Expert:  Lane replied 1 year ago.

While I'm waiting selling the stocks is a capital transaction as well... selling them will generate a capital gain as well, also taxed at the long term rate, BUT with none of it excluded AND will be a lower number, of course, because of the smaller amount ... AND very possibly less gain.

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Capital gain = sales price minus basis (basis is typically purchase price)

Customer: replied 1 year ago.
hank you. Yes, he's lived in the house for 40+ years and only in this facility for 6 weeks. Hospice assumes less than 6 months to live so he'll no doubt be covered in the primary residence test. Just to confirm: Taxable Income would be figured with his SS, sold stock (about $28,000 so far) and approx $135,000 (if his house sells for 385,000 less the 250,000). Am I on track here? And if we didn't have to sell the house right away (essentially his being able to live on his stocks), what is the inheritance tax? All of this seems quite morbid, but I have family members who are all seemingly experts....with differing opinions! Yikes! Thanks so much.
Expert:  Lane replied 1 year ago.

No no. It;s those that DON'T deal with these issues that sometimes learn things the hard way,

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At the federal level w don;t have an inheritance tax, we have an estate tax (inheritance tax - although many times handled by the executor - are owed by the heirs (rather than the estate ) itself.

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The lifetime exemption on the estate tax is $5,430,000 - for those dying in 2015 (it will go up a little each year).

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If you'll tell me your estate, I'll check that for you

.

Expert:  Lane replied 1 year ago.

And just looking back at the question - because so much o this IS at capitals rates ... we shouldn't leave it at just what taxable income is ... but rather run a quick projection to show the actual taxation ... because again, capital gains (which BOTH the stock sale and the home sale are) are taxed at a lower rater,

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AND 250,000 of the gain on the house sake is not even included.

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So once you get me the state, give me the purchase pt ice of the home and the stock so we can calculate basis, for gain purposes, THEN we'll be there.

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Lane

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