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35 years ago my husband and I purchased our home for

35 years ago my...

35 years ago my husband and I purchased our home for $81,000. Over those 34 yrs. we completed many improvements such as new furnace and adding central air, venal siding, new windows, new roof, new concrete driveway and brick patio, adding a central vacume syste, adding a security system, adding a intercom system, designing and maintaining a local award winning landscape and an irrigation system. My husband died unexpectedly in 2008. I recently felt the need to downsize and sold my house for $440,000. My husband was self employed and he had refinanced the house a number of times and had an equity loan to pay off. At closing after the mortgage of $235,000 and the Equity loan of $50,000 was paid I used the amount I got plus $7000 cash to purchase my condo. That closing was the same day. I have been told that I will have to pay income tax on the difference between our purchase price 34 years ago and the sale price. Is this true?

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

I don’t know.

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Answered in 4 minutes by:
3/18/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,721
Experience: Taxes, Immigration, Labor Relations
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Most likely - you will not have any taxable gain from that sale.

To be precised - we need following information

-- an approximate cost of improvement?

-- the fair market value of the house when your husband passed away in 2008?

-- did you receive form 1099S reporting that sale ?

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Customer reply replied 1 month ago
I do not have receipts for the work we had done over the years. It’s hard for me to guess how much they cost. The value of my house would have probably been the same in 2008. It’s located in a very stable and highly sought after suburb where the values never drop. They always grow.

And you are living in which state?

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Customer reply replied 1 month ago
Ohio
Customer reply replied 1 month ago
I really can’t afford to call

Ok - Ohio is not a community property state.

So - we need to determine separately basis for you and your spouse.

$81,000 - that was original basis - it will be divided equally as there were two co-owners.

Assuming you had $29k in improvements - total basis is $100k -

When your spouse passed away in 2008 - you got so-called stepped up basis equals to the fair market value for his half that you inherited.

So - assuming in 2008 the FMV was $440k

Your new basis will be estimated as

$50k for the part you owned PLUS $220k for the part you inherited - total basis $270k

Thus if you sell NOW for $440k

your gain will be estimated as

$440k (selling price) MINUS $270k (adjusted basis) = $170k

HOWEVER - because that was your primary residence

at least two out of last five years before the sale -

you are eligible to exclude such gain - up to $250k - from taxable income.

So far your gain will not be taxable regardless how the money were used.

Let me know if you need any clarification this matter

Here is IRS publication which explains that provision in details.

https://www.irs.gov/pub/irs-pdf/p523.pdf

I hope that helps.

Just ignore phone call offer if you do not need it - it is automatically generated.

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If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

Lev
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