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RayAnswers, Attorney
Category: Estate Law
Satisfied Customers: 41069
Experience:  Texas lawyer for 30 years in Estate law
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Need attorney in community property state (Texas) for question

Customer Question

Need attorney in community property state (Texas) for question about cost basis .
Cost basis is more complicated than my probate attorney explained to me. Husband died. Sold rental property a year and a half later.
So, now I'm fooling around with my income taxes for 2015 (yes, I filed an extension), and, suddenly, I'm feeling the blood drain out of my body .
My probate attorney told me very plainly that the cost basis would be a new figure based on the date I chose after my husband's death. So, I sold two pieces of property , with the understanding that I wouldn't have to pay taxes on them based on what he said to me.
Now, as I work through this, I have discovered that cost basis can be very complicated and , in fact, confusing. The language used to address it is gobbledygook. As I read through it, I am finding odd math and logic and a bizarre "step up" where there is, indeed, a "step up" of some type , but then half of that is added to something else instead of straight new cost basis figure.
Please tell me that the gobbledygook I am reading is not telling me that I have to adjust the figure my attorney told me down by half or a quarter and a half or something crazy! like that .
I really do need to be able to sleep tonight. Can someone please just use the simple figure of one dollar to explain cost basis to me? Again, I am a resident of Texas.
(And, in case anybody ever reads this with any authority or empathy for widows and widowers, I would like to say that , since funeral homes are the first required stop for widows and widowers, a COMPLETE B-O-O-K of what to be aware of should be a required function of the funeral home AND it should be the job of the PROPERTY TAX OFFICE where you pay your property taxes (or the job of the county clerk where your purchase or deed is recorded) to give you a BOOK of all the important things you need to know FROM THE BEGINNING of your purchase to "prove" your stupid "cost basis" if you ever need to . You shouldn't wait until you get ready to pay your income taxes to find out that Publication Crazy A, B, and C tells you that "you should keep your records to prove 'cost basis' " longer than the seven years you were told by someone on TV. It is a travesty to learn these things after the fact.)
Submitted: 1 year ago.
Category: Estate Law
Expert:  RayAnswers replied 1 year ago.
Hi and welcome to JA .Ray here to help you today. You want a tax preparer here to calculate the basis for the sale of the properties.You likely owe capital gains on the difference between when you purchased the property and it sold.These were rentals so the exceptions for your homestead principal would not apply
Expert:  RayAnswers replied 1 year ago.
Here are the rates , they vary for brackets.. For qualified dividends and long-term capital gains, the tax rate is 0% for the 10%–15% brackets; 15% for the 25%–35% brackets; and 20% for the 39.6% bracket.
Expert:  RayAnswers replied 1 year ago.
Here is step by step if you want to try this yourselfStep 1Calculate your income and expenses for the rental on Schedule E in the year of disposition. Even if you have no income for the property, you’ll still have a depreciation expense in the year of disposal. Depreciation expenses are recaptured to calculate capital gains regardless of whether you claim the expense, so you’ll want to ensure you get the benefit of the depreciation cost for the property.Step 2Calculate your basis for the rental house. If the house was always maintained as a rental, your cost basis equals the purchase price, plus improvements and non-deductible expenses you pay to secure the title to the property. If the rental was converted from personal use, your cost basis equals the fair market value of the house on the date of conversion, plus improvements made during the time the house was a rental.Step 3Add back depreciation expenses. When you sell rental real estate, you must recapture the depreciation you claimed, or were entitled to claim in previous tax years. If you used tax software or a professional tax preparer to prepare your last return, you should have a depreciation worksheet with your tax records. The worksheet lists your accumulated depreciation. Add your current year’s depreciation expense to the accumulated total from the year before. The result is the depreciation you must recapture.Step 4Add your recaptured depreciation to your basis. The result is your adjusted basis for the rental house.Step 5Calculate the sales price of the rental house. This includes the price you sell the property for, minus any expenses you pay to facilitate the sale, such as closing costs and cash to buyer. The result is your net sales price.Step 6Subtract your adjusted basis from the net sales price. If the result is positive, this is the amount subject to capital gains tax. If the result is negative, you may have a deductible capital loss.
Expert:  RayAnswers replied 1 year ago.
For instance, if you bought your rental for $95,000, paid $1,200 in title costs, $750 in legal fees, and $1,800 for your mortgage, your cost would be $96,950, which encompasses everything but the mortgage. Next, add in the cost of any improvements that you made to the house. An improvement is anything that you do to the property that increases its value, changes its use or makes it last longer, and includes everything from adding a swimming pool to replacing a roof to renovating a bathroom. If you spent $9,000 on a new roof and $10,500 on a kitchen remodel, you'd add that $19,500 to the $96,950 cost to find a total adjusted basis of $116,450. The IRS lets you pull all of your sale-related expenses out of the price first to calculate what it calls the amount realized. For instance, if you sold the house for $179,000, paid a 6.5 percent commission of $11,635 and paid $3,250 in closing costs, your amount realized would be $164,115. o find your gain or loss, subtract your adjusted basis from your amount realized. If the number is ***** you have a gain that will be taxable. If it's negative, you have a loss that you can use to offset other taxable gains.To find the bot***** *****ne for house with a $116,450 adjusted basis and a $164,115 amount realized, subtract the former from the latter to find a total gain of $47,665. The tax treatment of the gain depends on how long you held the asset -- short-term capital gains taxes apply to homes held for less than one year, and long-term gains apply if you hold it for more than a year. I appreciate the chance to help you today.I hope this example gives you an idea of how to calculate the gain and then you can work on your situation.You may also want to rough it out and then have tax preparee look it over.
Customer: replied 1 year ago.
I am more confused than ever. I am getting conflictingood information. TurboTax is what I am using to figure my taxes and it is gobbledygook and open window close window (so that you never see the whole picture and can't just flip back through to refer to your I formation). The tax bulletins put out by IRS are gobbledygook for sure.It would seem like, as a widow in Texas that I would be entitled to using 100 percent of the new cost basis and , since there is a new cost basis and no depreciation has been declared on that cost basis, also entitled to begin depreciation on that new amount so that historical depreciation become a a moot point .
Customer: replied 1 year ago.
I meant to type "conflicting information," not "conflicting good information. "
Customer: replied 1 year ago.
I am completely dissatisfied with your answer. I do not believe you read my original question in which I stated that I am a widow in the community property state of Texas.
Expert:  RayAnswers replied 1 year ago.
Here I am assuming you are filing a joint return if this was the year your husband died.You will owe capital gains on the difference between value when you bought it and value you sold it.The reason you are on the hook for all of it is because you are filing a joint return, both of you have a community share. This is different that say you inherit a home from your mother, there the basis is the date you inherit and you owe for the difference between when you inherit and when you sell it. Here you and husband own whole thing and you owe taxes on whole thing here since you have entire interest.In theory your husband owned half and you half but you will owe capital gains on all of it here since you both owned it all. And I am Texas lawyer for 30 plus years.This is different here since you are accounting for the whole property tax wise, his share and yours in a joint return. Let me know if you have more follow up , thanks again.
Customer: replied 1 year ago.
Thank you for your quick response. Still, I am going to say that you didn't read my question and that your answer is incorrectIf you take a minute to read my original question, you will see that I wrote that I sold the property a year and a half after my husband's death. Clearly, I am not filing a joint return. I am filing a return as a single , widowed woman a year and a half after my husband's death. I filed our last joint return the year after he died.Since it is now Monday, I just spoke to my accountant and he tells me that , as a Texas widow filing as single, I am entitled to claim 100 percent of the new cost basis ((based on the current market value) on every piece of real property that I inherited from my husband, whether business, rental, or personal.I spent the weekend fretting over your wrong answer when I was searching for something that made sense to give me a more comfortable weekend. I request either a refund or a credit to my account.
Expert:  RayAnswers replied 1 year ago.
I am going to opt out here.Thanks.

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