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I purchased my house in 1982 for $50,000 with my then

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I purchased my house...

I purchased my house in 1982 for $50,000 with my then husband. We divorced in 2002 and he sold me his half for $1. I lived there for 3 years and then rented to by son. He now wants to purchase the house. I owe 240,00 on the house. How much capital gains will I have to pay?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

I don't know what else you would need

Submitted: 7 months ago.Category: Tax
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12/8/2017
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,609
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Welcome to JustAnswer!

My name is ***** ***** I will be able to assist you today.

Your initial cost basis is $50,000. You are able to add to your cost basis the amount spent on improvements to the home you made over the years.

Do you know approximately how much you spent, if any on improving your home over the years?

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

When you rented the home to your son and consider the home an investment property?

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Customer reply replied 7 months ago
Im sorry I owe 14000 on the house and spent approximately 70000 on expenses. Some of which I have deducted as rental expenses. (40,000 last year I did not)
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

Ok, you would add your intitial purchase price of $50,000 plus the amount spent on improvements of $70,000.

These two numbers give you a cost basis of $120,000

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Customer reply replied 7 months ago
The home is in New Jersey and I live in PA -don't know if that matters
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

If you sell the home for $240,000 then you would have a potential capital gains tax of $120,000.

If you did classify the property as an investment property on your taxes in the previous years then you would have to add back an depreciation that is "allowed or allowable."

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

You are able to subtract the amount of closing cost.

The location of the property doesn't affect the taxes at a federal level

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Customer reply replied 7 months ago
I owe 140,000 on the house (sorry not 240000) I was going to sell it for what I owe to my son.
Customer reply replied 7 months ago
What would the capital gains tax be then approximately?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

Ok, if the sale price is $140,000 and your cost basis is $120,000 then your potential capital gains tax would be based on $20,000 of long term capital gains.

Capital gains tax is taxed at 0%,15% and the top bracket of 20%

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

There is a worksheet with multiple inputs, but the majority of tax payers pay 15% LTCG. Therefore, your tax obligation on $20,000 of long term capital gains tax would be approximately $3,000

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Customer reply replied 7 months ago
What do you mean by add back depreciation?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

Any previous depreciation you may have taken or were allowed to take must be added back and is taxed as ordinary income

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

You need to verify from your previous tax returns how you classified the property. If you claimed the property as a rental property then you were allowed to depreciate the property in previous years as a current year deduction.

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Customer reply replied 7 months ago
I have depreciated the home over the last 12 years of renting it
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

When you sell the property the IRS requests that you recapture the depreciation that you were previously allowed.

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Customer reply replied 7 months ago
Since I am selling to a family member is there a way to avoid closing cost?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

You could do a quit deed to transfer the title to your son

This will work as long as your Son doesn't need to take out a mortgage. If he does need a mortgage then he would have to pay closing cost due to the mortgage process.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

If you have any additional questions please let me know.

If you have no further questions please take a moment to accept and rate my answer by clicking on three stars or higher.

A positive rating of five stars is always appreciated.

Thank you!

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

Is there anything further I can assist you with?

Was I able to answer your question thoroughly? If not please let me know your outstanding questions.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 7 months ago

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