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I am doing some estate planing. In order to move forward I…

I am doing some...

I am doing some estate planing . In order to move forward I need to understand my options regarding my second home. I would like a quote and timing to research an answer the questions below

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Here are the questionTAX /estate questions
Present situation
Second home purchased 1995 for $167,000.00
Value today $640,000.00
Capital improvement’s
A. Living room addition 2003 $100,000.00 *
B. Garage addition 2012 $100,000.00
C. Landscaping 2010 $100,000.00*
*no receipts only pictures of improvement’s
House was moved to family trust in 2013.
Home was never rented.Questions
1. What is the basis for capital gains $267,000 or $467,000 considering only pictures and building permits for proof of additional $200,000.00
2. If IRS declines the $467,000.00 value what is my recourse. What is appeal procedure. Are the specific firms that deal with appeals.
3. If house is placed into an irrevocable trust @ a value of $640,000 what are the tax issues.
4. Can I make a one time gift to two of my children $337,000 each or $14,000.00 each deducted from house value every year for the rest of my life without capital gains implications.
5. If the house stays in our family trust and passes to my children in the trust at our death is there a capital gain tax due (considering the estate will be less than 2 million dollars. When and If they sell the home is there a tax due
6. If I sell my permanent home and move into the second home as a permanent residence and sell after 3 to 5 years can I claim the $500,000.00 gain deduction.

Accountant's Assistant: Is there anything else important you think the Accountant should know?

State is Massachusetts

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Answered in 8 minutes by:
3/28/2018
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,180
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified

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Customer reply replied 29 days ago
are you still there I just want a quote

Typically when you begin estate planning you start by identify your goals for the estate and the assets within the estate.

___

1. With the information you have provided your cost basis for your 2nd home is the initial purchase price ($167,000.00) plus your improvements ($300,000 : $100K for addition, $100K for Garage and $100K for landscaping) for a total cost basis of $367,000.

---The burden of proof to prove expenses for improvements is on the tax payers and in the worst case scenario subject to review and approval by an auditor.

_____

2. The IRS has a very robust appeals process. Generally before you would start an appeal the tax would need to be assessed or proposed to be assessed before you would begin an appeals process.

Below is a link to IRS.GOV which contains more information about the appeals process.

https://www.irs.gov/government-entities/federal-state-local-governments/appeals-process

____

3. When you place the home in an irrevocable trust your cost basis of $367,000 will carry over to the irrevocable trust and the beneficiaries will not receive the benefit of a step up in basis when the property is distributed.

Below is a link to the American Bar association. org

https://www.americanbar.org/content/dam/aba/publishing/rpte_ereport/TE_Schneider.authcheckdam.pdf

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Ok, then I will post pone answering. The site generally, already makes you a price offer, but at your request I will make an additional offer.

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Customer reply replied 29 days ago
all I saw on the site was The $5 dollar trial. I want all answers in writing and I want the additional quote. This is a one time cost not and on going subscription. If I am on the wrong site let me know.

I sent the additional quote. I am a site user like you and offer financial planning and tax advice. I also already provided you with three of the four answers that you requested in writing.

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Customer reply replied 29 days ago
Ok I will take the quote . I had 6 question not 4.
Customer reply replied 29 days ago
no sure is the quote $52

$41-$52 is generally the site charge. $52 generally applies if you would like to speak on the phone.

I will finish the answering. If you are satisfied then you may accept the answer without signing up for a monthly membership.

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Customer reply replied 29 days ago
Ok let's do it. You mentioned the cost basis was $ 367000 for the trust. Shouldn't be 167000 plus improvements 300000 equaling 467000

___

4. The gift tax exclusion amount was recently increased to a life time amount of approximately $11 million and an annual amount of $15,000.

You may make gifts of equity in the home to each child in the amount of $15,000 annually or $11 million dollars as of 2018 without incurring any estate tax or capital gains tax for gifting the equity in the home. ---If your children then sell the home they would pay capital gains based off your cost basis because the home was gifted.

___

My suggestion is to place a A transfer-on-death (TOD) on the deed, some also call this a beneficiary deed. This will allow your children to receive a step up in cost basis to the fair market value at the date of death of the owner.

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Q:You mentioned the cost basis was $ 367000 for the trust. Shouldn't be 167000 plus improvements 300000 equaling 467000---You are correct.

Initial purchase price plus improvements. $167,000 + $300,000 improvements = $467,000

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5. If the house stays in our family trust and passes to my children in the trust at our death is there a capital gain tax due (considering the estate will be less than 2 million dollars. When and If they sell the home is there a tax due

A: If the home was in an irrevocable trust (as opposed to revocable which is slightly taxed differently) the trust would pay capital gains tax if the trust were to sell or transfer the property. --Once the property is transferred to the irrevocable trust, the property is no longer in your estate. ---The trust will owe taxes when the the trust sells the property.

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6. If I sell my permanent home and move into the second home as a permanent residence and sell after 3 to 5 years can I claim the $500,000.00 gain deduction.

A: Yes, if you live in the home for at least 2 out of the previous 5 years you are able to use the exclusion provided under IRC 121, if you have not used the exclusion in the previous 5 years.

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Customer reply replied 29 days ago
on Question 5 what if the home stays in the family trust not the irrevocable trust.
If I am interpreting your answers correctly. if I want to convert the 640000 into cash. I can gift it to the children and they can sell and pay no capital gain . I realize then it would be thier money not mine. Any other thought on how I can convert to cash without capital gains. You have been very helpful

If the goal is to minimize capital gains tax, then in my opinion, the best strategy is to place a transfer on death (TOD) on the the deed or place the home in a revocable trust with your children as the beneficiary. This will allow the property to receive a step up in basis.

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---if I want to convert the 640000 into cash. I can gift it to the children and they can sell and pay no capital gain .---

No, when you gift your children property they also receive your cost basis. Therefore, they would be taxed on the same amount of capital gains.

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Customer reply replied 29 days ago
Great thank you .How do I get print out of this conversation and How do I end the session

I copy and paste to a word document for friendlier printing or save the link to a favorite in the web browser.

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You may end the session by clicking on three stars or more.

Please do let me know if you have any additional questions.

Thank you

Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,180
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified
Chad EA, CFP ® and 87 other Tax Specialists are ready to help you
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Chad EA, CFP ®
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,180
2,180 Satisfied Customers
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA

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