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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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2 US tax questions... 1) My 70 year foather is selling his

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2 US tax questions...

1) My 70 year foather is selling his primary residence and I wondered what the capital gain tax rate would be. His annual retirement income is 36K USD per year. an estimate is fine

2) He would like to gift part of the gain to his minor grandkids. Is it best to do this via the parents or directly to the minor children as a lump sum (eg 50K USD), in 10K increments over time or directly into another financial instrument (e.g., 529 savings plan).

any help appreciated! Vivian
Hello vivian,

If your father has owned this home for at least 2 years and if he has lived there for at least 2 of the last 5 years, then he qualifies to exclude $250,000 (or $500,000 if he is married filing a joint return) from any gain he has on the sale of this home before any tax would be due. His gain is figured by taking the selling price less his basis. And his basis is whatever he originally paid for the home plus the cost of any improvements he made while he owned it. So if he is a single person, then if is gain is $250,000 or less, he will owe no tax. If his gain exceeds $250,000 then he would owe tax on the excess gain at a rate of 15%.

As far as giving part of the money to his grandchildren, this should not be a problem.   Here are the current rules on gift taxes.
First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due. This is part of what is called the Uniform Tax Credit Act.

In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.

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Thank you vivian.

PS. I will be leaving the forum for now but will be back in here later this afternoon. If you have additional questions on this, just post them and I will respond as soon as I return. Thanks again.

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