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Tax.appeal.168, Accountant
Category: Finance
Satisfied Customers: 3470
Experience:  Tax Accountant
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My father passed in 2010. Since then my mother has been in

Customer Question

My father passed in 2010. Since then my mother has been in contact with her highschool sweetheart whom id also widowed. They are planning on spending the rest of their lives together. My mother has a paid for home valued at 390,000. The house is sold. My mother intends on paying the realtor (6% - $23,400) and having a balance of $366,600. She is giving my brother and I each 145,000 and keeping the remaining $76,600. She considers this our fathers money and doesn't feel its fair to take the proceeds from the sale into a new relationship. The question is is she going to have to pay capital gains? are we going to have to pay income tax? My brother is single and I am married. The "gift tax" information available online is convoluted at best.
Submitted: 1 year ago.
Category: Finance
Expert:  Tax.appeal.168 replied 1 year ago.
Q1: The question is is she going to have to pay capital gains? A1: In brief, unless there was a substantial gain, you mother will likely not have to pay capital gains. It is likely that your mother qualifies for the $250,000 home sale exclusion. In order to determine the gain amount, start with the cost basis (cost of property, plus cost of qualified improvements ), subtract the selling price from that amount. This is the amount of the gain. From that amount, subtract $250,000 (if your mother meets the qualifications--ownership and residence test). If there is still a gain amount, that is the amount that she has to pay capital gains tax on. For more information regarding the requirements to exclude the $250,000, you can refer to IRS Pub 523, page 3. Link to IRS Pub 523: --------------------------------Q2: are we going to have to pay income tax? A2: No, but as the gift amount is above the annual exclusion amount of $14,000, your mother is required to complete a Form 709 (Gift Tax Return). This is an information return to show that she has gifted away part of her lifetime exclusion amount, which is currently $5.43 million. This means that a U.S. person can gift away this amount in their lifetime with no tax having to be paid. Note that even if tax was due on the gift, it is usually the donor, not the donee that has to pay it. Link to Form 709/instructions: Let me know if you require further assistance with this matter.