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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11136
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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We got married in January and are both over 65. My wife owns

Customer Question

We got married in January and are both over 65. My wife owns a house in Nebraska which she wants to sell. Her daughter currently lives there and is getting storm damage from a recent hail storm fixed before putting it on the market. Some legal issues arose and her daughter’s lawyer recommended executing a “quick claim” deed back in March so the daughter could handle the issues with the courts. If the house is sold while in her daughters’ name, what gift tax would my wife have to pay? If the house is “quick claimed” back to my wife before the house is sold, is the gift tax still applicable?
The house should sell for roughly $260,000 and the outstanding mortgage is about $150. If the daughter sells under the current circumstances, is she liable for capital gains tax? If she returns a portion of the sale price back to her mother, is that again subject to gift tax?
Submitted: 4 months ago.
Category: Tax
Expert:  Lane replied 4 months ago.

Hi. My name's Lane ... I can help you here.

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The quit-claim with no money being exchanged is a gift. And until/if the house is quit-claimed back the house is owned by the daughter.

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So if the house sells while powned by the daughter, she will have a capital gain.

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Capital Gain = sales price minus basis.

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Basis is normally purchase price, but the basis of something received as a gift is "carry-over basis." The basis of the giver caries over to the receiver of the gift.

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SO the capital gain that wold be realized if the daughter sells is exacely the capital gains that is realized if the mother sold the house while SHE owned it.

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Long-term gains (gains on assets held for one yeafr or longer) 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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Short term gains are taxed as ordinary income. AT those regular, higher, rates.

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The annual gifr tax exclusions is at $5,450,000 fr 2016 so there would be no gift tax unless the mother had given away more than 5 million+ during her lifetime

Expert:  Lane replied 4 months ago.

Normally, when a home is lived in and owned for two of the last five years before sale, $250,000 of the capital gain ($500,000 for those married filing jointly) is excluded from taxation, but that may not be possible for EITHER the mother OR daughter UNLESS the daughter lived in the home for two years after the time of the qui-claim before selling.

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Please let me know if you have questions at all, before rating me.Please let me know if you have ANY question at ALL, before rating me.

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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and clicking “submit").

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Thanks!

Lane

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I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Customer: replied 4 months ago.
Follow-up question: My wife has owned and lived in the house 10 out of the last 11 years prior to “qui-claiming” the house to her daughter. If the daughter qui-claimed the house back to her mother, would the mother, who is over 65, have to live in the house any additional time to avoid capital gains? The daughter lived in the home for 2-3 years prior to the qui-claim. If it is qui- claimed back, is there any advantage of doing it before December 31?
Expert:  Lane replied 4 months ago.

Hi,

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The IRS test for Primary Residence is that the person selling the house (to get the 250K/500K) exclusion must have owned and lived in for any 24 months (doesn't have to be continuous) out of the 5 yuears before sale.

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So yes, quit-claiming it back (the term quit-claim, comes from quitting your claim to the property) would work here. As long as Mom can look back for 5 years prior to the sale date, and has lived in the home for 24 of those months.

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And the only advantage to doing it in one tax year would have to do with (1) other issues of that tax year ... (maybe more other income in that year than another) and (2) how it might affect that 5 year lookback.