Capital Gains and Losses

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I have a bit of complex real estate transaction going on at…

I have a bit of...
I have a bit of complex real estate transaction going on at the moment. I'm buying a home from my parents that my mother inherited from her aunt. The house was appraised at 255K but they are going to sell it to me for 200K and allow me to use the 55K in equity as a down payment for a mortgage. The mortgage company is telling me that in order for the gift of equity to work and for my parents to net 200K for the house the purchase price will need to be 255K. My parent's concern here is how this will affect the capital gain tax if they technically sold the house for 255K but only recevied 200K for it. Any advice would be helpful. Thank you!
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3/7/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 13,995
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, to clients on three continents, since 1986.

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No, the amount of the gift is subtracted for the gain, becasue gifts are specifically excluded from income tax under IRC §102.

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When they report the sale, however, they should enter the sales price as it will appear on the 1099-S, or you will receive a notice from the IRS.

...

To offset that, you can either enter a higher cost basis (additional 55K) or add it to selling expenses.

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Customer reply replied 1 month ago
Ok great, that is very helpful and it should help them feel more comfortable about the sale. Thank you!

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

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Thank you,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 13,995
Experience: Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
Verified
Lane and 87 other Capital Gains and Losses Specialists are ready to help you
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Thanks much ... here's the tax law reference for you: https://www.law.cornell.edu/uscode/text/26/102

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Customer reply replied 1 month ago
Excellent, thank you.

You're very welcome

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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 13,995
13,995 Satisfied Customers
Experience: Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning

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