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home sale - capital gains

Old 06-08-2015, 04:32 PM
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Default home sale - capital gains

Here's the backdrop:

Mom & dad lived in the same house for 45 years. Dad died more than two years ago. Mom is ready to sell the house. If he were still alive, or died within two years of selling the house, the exemption on gains would be 500k.

Since he died more than 2 years ago, is the surviving spouse exemption half of his (ie 125k) plus her 250k, for a total exemption of 375k?

So if they bought the house for $20k, and sell it for $370k, that shows a gain of $350k. But if the exemption is for up to $375k, then she doesn't have to pay any gains, right?
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Old 06-08-2015, 04:44 PM
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Don't forget all the improvements and expenses over those 45 years. I bet the cost basis is a lot higher than 20k.
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Old 06-08-2015, 04:46 PM
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She should have stepped up basis from when he died if it were in both names, she technically would have inherited his "half" of the house
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Old 06-08-2015, 05:04 PM
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Originally Posted by jobowker View Post
Here's the backdrop:

Mom & dad lived in the same house for 45 years. Dad died more than two years ago. Mom is ready to sell the house. If he were still alive, or died within two years of selling the house, the exemption on gains would be 500k.

Since he died more than 2 years ago, is the surviving spouse exemption half of his (ie 125k) plus her 250k, for a total exemption of 375k?

So if they bought the house for $20k, and sell it for $370k, that shows a gain of $350k. But if the exemption is for up to $375k, then she doesn't have to pay any gains, right?
Spend the money and talk to an accountant. Will save u dollars in the end
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Old 06-08-2015, 05:06 PM
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Originally Posted by tprice View Post
She should have stepped up basis from when he died if it were in both names, she technically would have inherited his "half" of the house
This^. Did she get an appraisal when she was settling your Dad's estate? If so, that is the new basis.
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Old 06-08-2015, 05:26 PM
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Originally Posted by tprice View Post
She should have stepped up basis from when he died if it were in both names, she technically would have inherited his "half" of the house
Originally Posted by Shag View Post
This^. Did she get an appraisal when she was settling your Dad's estate? If so, that is the new basis.
Depends on the state, but in NC, absent a pre-nup or specific language to the contrary in the deed, the default deed for a married couple is held "Tenancy by the entirety".

Upon the death of either, the property automatically becomes the sole property of the survivor, regardless of any provision in a will.
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Old 06-09-2015, 04:14 AM
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Finance the house for about what it's worth. take the money and run. Seems to me if you sell the house for little or no profit it cannot be taxed.

Just a thought. Can it be done??
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Old 06-09-2015, 04:22 AM
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I know that the house is hers - that part I understand. the question is how much of an exemption she can take wrt capital gains. If I understand it properly (doubtful) she is exempted for up to $375k, and then we wouldn't have to find 30 year old receipts for things she did to the house or have her worry abut being audited.
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Old 06-09-2015, 04:24 AM
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Originally Posted by Rustybee View Post
Finance the house for about what it's worth. take the money and run. Seems to me if you sell the house for little or no profit it cannot be taxed.

Just a thought. Can it be done??
Financing has NO BEARING on the house, basis is what you PAID for the house orginally plus any improvements/closing costs and etc.

Run into this quite a bit with rental property, folks will mortgage it to the hilt and then sell for payoff and think they broke even or lost money However they are shocked when inform them differently
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Old 06-09-2015, 05:08 AM
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Originally Posted by jobowker View Post
Here's the backdrop:

Mom & dad lived in the same house for 45 years. Dad died more than two years ago. Mom is ready to sell the house. If he were still alive, or died within two years of selling the house, the exemption on gains would be 500k.

Since he died more than 2 years ago, is the surviving spouse exemption half of his (ie 125k) plus her 250k, for a total exemption of 375k?

So if they bought the house for $20k, and sell it for $370k, that shows a gain of $350k. But if the exemption is for up to $375k, then she doesn't have to pay any gains, right?
what is this 2 year stuff, can someone explain that?
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Old 06-09-2015, 05:18 AM
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Originally Posted by jobowker View Post
I know that the house is hers - that part I understand. the question is how much of an exemption she can take wrt capital gains. If I understand it properly (doubtful) she is exempted for up to $375k, and then we wouldn't have to find 30 year old receipts for things she did to the house or have her worry abut being audited.
Sale within two years the surviving spouse qualifies for the entire $500k exemption. As already pointed out there will be basis step up to fmv as of the date of husbands death, typically but not always on 1/2. Proceeds less adjusted basis = gain then apply exemption.
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Old 06-09-2015, 06:00 AM
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Originally Posted by tprice View Post
She should have stepped up basis from when he died if it were in both names, she technically would have inherited his "half" of the house
This
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Old 06-09-2015, 06:03 AM
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Originally Posted by jobowker View Post
I know that the house is hers - that part I understand. the question is how much of an exemption she can take wrt capital gains. If I understand it properly (doubtful) she is exempted for up to $375k, and then we wouldn't have to find 30 year old receipts for things she did to the house or have her worry abut being audited.
When he died, and left her the house (his share or whatever), the house should have been appraised and basis from the $20k to whatever it was worth at that point in time. That is the new basis...and if the house was worth $300k 2 years ago and sells for $350k, then it is only a $50k gain.
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Old 06-09-2015, 06:47 AM
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Originally Posted by tprice View Post
Financing has NO BEARING on the house, basis is what you PAID for the house orginally plus any improvements/closing costs and etc.

Run into this quite a bit with rental property, folks will mortgage it to the hilt and then sell for payoff and think they broke even or lost money However they are shocked when inform them differently
Interesting....please explain on here or PM me as I am currently looking at selling my house. I am looking to just "break even" as I probably paid a little too much during the '08 dealings.
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Old 06-09-2015, 08:24 AM
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Originally Posted by HookSpit View Post
Interesting....please explain on here or PM me as I am currently looking at selling my house. I am looking to just "break even" as I probably paid a little too much during the '08 dealings.
It effectively means that any interest you pay on your mortgage isn't part of your basis. Example...

You buy a home for the purchase price of $200,000. You add a deck for $10,000. You remodel the kitchen for $20,000. You live there for 10 years and pay someone to cut the grass for $1,000 a year ($10,000). Over the 10 years, you pay $75,000 in interest on your original loan. You sell the house for $350,000.

Your cost basis is $230,000 (less any depreciation, a separate topic). You cannot count the "routine maintenance" (the lawn guy) or the interest you paid on your loan in your cost basis. So you sell for $350,000, cost basis is $230,000, your gain is $120,000.
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Old 06-09-2015, 09:39 AM
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Originally Posted by fishocean View Post
Spend the money and talk to an accountant. Will save u dollars in the end
+1. I'm officially boycotting all tax threads. I'm not giving out free tax advice and either should anyone else who does not know all the facts, most of which are never fully disclosed on the forums. You get what you pay for, which also applies to free tax advice.
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Old 06-09-2015, 10:58 AM
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Originally Posted by Ronn Burgandy View Post
It effectively means that any interest you pay on your mortgage isn't part of your basis. Example...

You buy a home for the purchase price of $200,000. You add a deck for $10,000. You remodel the kitchen for $20,000. You live there for 10 years and pay someone to cut the grass for $1,000 a year ($10,000). Over the 10 years, you pay $75,000 in interest on your original loan. You sell the house for $350,000.

Your cost basis is $230,000 (less any depreciation, a separate topic). You cannot count the "routine maintenance" (the lawn guy) or the interest you paid on your loan in your cost basis. So you sell for $350,000, cost basis is $230,000, your gain is $120,000.
Thanks. I have done some remodeling and new heat/air since I have moved in in 2008. Like an idiot, I got caught up in the "its a buyers market" scam and paid too much for my house. I will be happy if I make enough to cover closing costs, misc fees from realtor, and just walk away from it. Not asking for the 15k or so that I have put into it for my what I consider "owning a house expenses"
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Old 06-09-2015, 11:09 AM
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My mom is about to go through this. Dad passed away two years ago this November. They bought their house 35 years ago so basis is pretty low except for the step up for his portion based on appraisal. She is pretty set on putting house on the market this summer due to this exemption. I need to run the numbers to see how much it will really help.
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Old 06-09-2015, 11:14 AM
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Originally Posted by HookSpit View Post
Thanks. I have done some remodeling and new heat/air since I have moved in in 2008. Like an idiot, I got caught up in the "its a buyers market" scam and paid too much for my house. I will be happy if I make enough to cover closing costs, misc fees from realtor, and just walk away from it. Not asking for the 15k or so that I have put into it for my what I consider "owning a house expenses"
Remodeling and other improvements could add to your basis, depending on how you approach your taxes...
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Old 06-09-2015, 11:31 AM
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Originally Posted by HookSpit View Post
Thanks. I have done some remodeling and new heat/air since I have moved in in 2008. Like an idiot, I got caught up in the "its a buyers market" scam and paid too much for my house. I will be happy if I make enough to cover closing costs, misc fees from realtor, and just walk away from it. Not asking for the 15k or so that I have put into it for my what I consider "owning a house expenses"
If you've lived there for more than 2 years, live their currently, and aren't looking at making more than $250k, you almost certainly have nothing to worry about. IRS publication 523 will explain the criteria. Despite what some think, you don't need to pay an accountant every time you have a simple tax question.
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