Capital Gains and Losses

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I want to sell the house I inherited in 2010. It is worth…

I want to sell...

I want to sell the house I inherited in 2010. It is worth 1.2 million. I know I have to pay capital gains taxes over $500,000. My husband and I combined income was 79K last year, just 3 grand over the mark that makes us pay 15%. Should we donate or gift our kids money before Dec. to make our income less to avoid the 15% cap gains on the sale of our home? Would we then have to wait until after filing 2017 taxes to sell?

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Answered in 1 minute by:
11/18/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 14,644
Experience: Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
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HI, MY NAME’S LANE - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this

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Customer reply replied 8 months ago
ok
Customer reply replied 8 months ago
I would rather keep this cheap, the whole reason we have to sell is that we are low on funds from a medical problem.

First, it's important to understand capital gain.

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Capital Gain = Sales Price - Basis

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Normally, basis is what you have invested in the property (purchase price + improvements)

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But when property is inherited the basis is stepped up to the Fair Market Value of the asset as of the date of death.

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So, if the house hasn't appreciated more than 500,000 since the date of death, you'll have no taxable gain.

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If it HAS, it's important to understand that capital gain itself is also part of taxable income (I'm attaching a graphic for you that illustrates how that works).

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Finally, gifts assets away is not deductible. And giving money to charity reduces your taxable income, but unless you were going make charitable contributions anyway, (until we get to a 100% tax rate) that really would provide any net benefit to you.

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Customer reply replied 8 months ago
OK so what I understand is that the capital gains isn't based upon the worth of the house less the $500,000 rate reduction but rather the increase of the value on the house since 2010 the year we inherited it? Cap gains is assessed upon the rate of increase in value from the date we inherited, correct? Not our income bracket?

Please disregard that automated phone offer. It's generated by the site. That didn't come from me.

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But again, it's VERY likely that you don't have a taxable gain here (that the house hasn't risen in value more than 500,000 since the date of death)

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At the closing, you will be given a certification statement to sign that (given the circumstances) will keep them from generating a 1099-S on the sale, so not only is this not taxable, there is nothing to report.

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Sorry ... looks like we crossed there ... let me read

Ask Your Own Capital Gains and Losses Question

Capital gain is sale price minus basis.

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And basis (becasue you inherited) is the fair market value in 2010

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So your gain is not going to be more than the amount you can exclude

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Customer reply replied 8 months ago
OH thank GOD! Wonderful, thank you so much for this info. Cool way to do it too.

See this from IRS: (here:https://www.irs.gov/taxtopics/tc701)

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"Reporting the Sale

If you receive an informational income-reporting document such as Form 1099-S (PDF), Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. Additionally, you must report the sale of the home if you can't exclude all of your capital gain from income. Use Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, when required to report the home sale."

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So here, there won't be tax and there won't be a reporting requirement.

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(you're welcome ; ... nice to be the good news messenger :0)

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You're very welcome ... Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough!

That's the only way I'll be compensated by JustAnswer for the work here

...

Thank you,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 14,644
Experience: Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
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