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I have heard that there is a one time tax free capital gain.

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My husband and his sister...
I have heard that there is a one time tax free capital gain. My husband and his sister just sold their deceased mothers house. People have told my husband that if he has never had a capital gain that there is a one time tax free capital gain and he wont have to pay taxes on it. My question is, is this true? We live in the state of ohio. My husband and his sister owned the house.
Submitted: 9 years ago.Category: Tax
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9/4/2008
Tax Professional: Lev, Tax Advisor replied 9 years ago
Lev
Lev, Tax Advisor
Category: Tax
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You likely mean the old law

Before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older in additional could take a once-in-a-lifetime tax exemption of up to $125,000 in profits.

The Taxpayer Relief Act of 1997 replaced these options with a better one: you can make tax-free profits of $250,000 (or $500,000 if your filing status is married filing jointly) every time you sell a home if you owned and used it as a primary residence for at least two years out of last five years before the sale.

 

If the property was inherited - there is stepped-up basis - fair market price of the property at the time the decedent died - that means if the property to be sold shortly after - it is likely will not have any capital gain or a very little.

Lev
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Customer reply replied 9 years ago

this house was not a prmary residence, so does this mean he has to pay taxes on it? He is 63 years old

Tax Professional: Lev, Tax Advisor replied 9 years ago

Was the house received as a gift or as an inheritance?

When did he received the house?

Was it used as a rental property?

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Customer reply replied 9 years ago

the house was bought byhim and his sister. It was a living trust.

May of 2007

No it was not used as rental property

Tax Professional: Lev, Tax Advisor replied 9 years ago

So your husband and his sister purchased the house in May of 2007 - correct?

If so - the purchase price - assuming it was purchased at fair market value - is considered a basis.

The basis should be adjusted by purchase expenses and improvement expenses.

It is not clear how the property was used... - as a second home - I assume....?

The gain would be = (sale price) - (adjusted basis ) - (selling expenses).

 

If you provide more information - I may help you with estimation.

 

As the property was purchased a little more than a year ago - there should not be a large gain.

Based on information provided - that gain will be taxable at reduced rate - not more than 15%.

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