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Ray
Ray, Lawyer
Category: Real Estate Law
Satisfied Customers: 42818
Experience:  Texas Attorney for 30 years dealing in real estate
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Trying to calculate taxes (capital gains?) on a home my mom

Customer Question

Trying to calculate taxes (capital gains?) on a home my mom has to sell.
She had traded property worth $1,000,000 to purchase this home she has lived in for 12 years. The home had increased in value to $3,000,000. She had taken out a reverse mortgage and now owes $2,000,000. Her home is on the market for $4,000,000 now.
Less closing costs, we are trying to figure out the taxes she will owe and what she could possibly profit. She is 83 years old and receives about $1100 from social security.
Submitted: 2 years ago.
Category: Real Estate Law
Expert:  Ray replied 2 years ago.

Hi and welcome to JA. I am Ray and will be the expert helping you today.Here if the purchase price was 1 million and it sells for 4 million she owes the taxes on 3 million less any exclusions and deductions she can muster.

Here is a one time exemption of $250,000 if this was her principal residence for 2 out of last five years that would reduce the amount of taxes..

http://www.irs.gov/taxtopics/tc701.html

Also if she has to repay the reverse mortgage that further reduces the amount of the gain.

Here are the tax rates on the final amount..

http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

Off the $4 million would come the loan payoff thats a chunk, the closing costs, the $250k exclusion, this should greatly reduce the amount she owes here if any..this is long term capital gains see the chart above for rates

I appreciate the chance to help you today.Please let me know if you have more follow up.Thanks again.

Expert:  Ray replied 2 years ago.

Looks like she might owe capital gains on say $1,750,000 less the $250,000 exemption so maybe taxes on $1,500,000

Here is the rate..

20% maybe $350,00 you may want to verify that with your tax preparer and also check to see if there are more deductions here.

I am just trying to give you a ballpark based on what I think you presented here.It is just that a guesstimate..