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Old 02-07-2018, 09:24 PM
 
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Quote:
Originally Posted by jlawrence01 View Post
I would certainly hire a tax attorney or a CPA before any sale. Personally, by selling prior to death, you might be missing a step-up basis that would eliminate any capital gain.
There is no step-up in basis on long term holds on rental properties. It's a tax on the entire prroceeds minus the cost of the property plus improvements.
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Old 02-07-2018, 09:27 PM
 
11,265 posts, read 11,276,606 times
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Quote:
Originally Posted by lvmensch View Post
That raises an interesting question. While I am sure she will end up mortgaging the property you might well look into selling the home to an LLC which is then placed into the trust. The maneuver is to get the home LLC owned so that you can sell the LLC and not the home. Could have a large impact on value. You need good CA professional input on this. I have a good CA CPA of the colorful sort if you need advice on whether that can be pulled off. DM me if you want it.
Thank you. I'll inquire of the real estate agent though I'm sure if that were a possibility we'd all be dodging capital gains taxes using that technique seeing as how I'm not the only one selling hugely appreciated real estate here in the southland.
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Old 02-07-2018, 09:28 PM
 
Location: Lone Mountain Las Vegas NV
12,901 posts, read 4,881,056 times
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Quote:
Originally Posted by thrillobyte View Post
There is no step-up in basis on long term holds on rental properties. It's a tax on the entire prroceeds minus the cost of the property plus improvements.

And less any depreciation which has likely taken the net of cost and improvements and depreciation of the property to zero.
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Old 02-07-2018, 11:06 PM
 
8,979 posts, read 8,118,034 times
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Quote:
Originally Posted by nobodysbusiness View Post
If it has been rented for all of those years, does it qualify for a 1031 exchange?
A 1031 exchange only applies in an exchange of one property for another, and does not apply when is sold to raise cash. Not applicable in this situation.
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Old 02-07-2018, 11:44 PM
 
80 posts, read 35,101 times
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Quote:
Originally Posted by thrillobyte View Post
I'm the trustee for my mother's living trust. She's 98 and doing well but not completely mentally efficient. I need to sell a property she bought in a good area in Los Angeles County back in the early 70's for about 15K. It has since appreciated to about 750K at last conversation with the agent who will sell it. The problem: the Federal capital gain is 20%, the state capital gain is 13.3% and the Medicare tax is 3.8% for a total of 37% directly to the combined governments. Is there any way to reduce these taxes without having to do Starker exchanges and similar exotic techniques? My mother needs the money for her very expensive care and I don't feel like I'm doing her estate justice by subjecting it to roughly 220K in taxes.

Have the property appraised by a certified appraiser.
Have your mother gift you the property as an advance on your inheritance.
Sell the property. There will be no capital gains as you will be stepped up. Your mother can leave up to $5.6 million to her heirs and pay no federal estate or gift tax. You will have used up $750,000 of the inheritance exclusion.
Gift up to $15,000 per year back to your mother without having to pay a gift tax.


Run this by your accountant first before you schedule an appraisal.


Your accountant will probably charge around $400 as the IRS will need to be notified of the transaction.


If you have siblings then divide the inheritance up and each can gift your mom up to $15,000 per year without having to pay a gift tax.
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Old 02-07-2018, 11:49 PM
 
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SOLUTION TO YOUR PROBLEM.

Keep property till death, and you can then skip estate taxes unless Trump tax bill changes that.

With that equity borrow against the property, to raise cash needed to pay bills for 5 years plus enough to prepay 5 years of annual payments. On her death, sell and let exemption do away with fed taxes. The loan costs to set up, and interest will be a lot less than selling now and paying capital gains taxes.
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Old 02-08-2018, 12:02 AM
 
80 posts, read 35,101 times
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Originally Posted by jlawrence01
I would certainly hire a tax attorney or a CPA before any sale. Personally, by selling prior to death, you might be missing a step-up basis that would eliminate any capital gain.




Quote:
Originally Posted by thrillobyte View Post
There is no step-up in basis on long term holds on rental properties. It's a tax on the entire prroceeds minus the cost of the property plus improvements.

For property tax:
What type of property can be transferred without a tax increase?


A parent may transfer their principal residence and any other property valued up to $1,000,000 to their children. The properties will not be reappraised providing that the proper Claim for Exclusion from Reappraisal form is filed and approved by the Assessorís Office.​


Do check with your local assessors office on this.
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Old 02-08-2018, 12:16 AM
 
2,132 posts, read 1,007,573 times
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Quote:
Originally Posted by The Dells View Post
Have the property appraised by a certified appraiser.
Have your mother gift you the property as an advance on your inheritance.
Sell the property. There will be no capital gains as you will be stepped up. Your mother can leave up to $5.6 million to her heirs and pay no federal estate or gift tax. You will have used up $750,000 of the inheritance exclusion.
Gift up to $15,000 per year back to your mother without having to pay a gift tax.


Run this by your accountant first before you schedule an appraisal.


Your accountant will probably charge around $400 as the IRS will need to be notified of the transaction.


If you have siblings then divide the inheritance up and each can gift your mom up to $15,000 per year without having to pay a gift tax.
DO NOT DO THIS WITHOUT CONSULTING THE APPROPRIATE PROFESSIONAL! Attorney or CPA or whatever.

I looked into doing this with a property (worth considerably less than this) that I own in another state (not CA). I was told it would be fraud, or something else bad. I don't remember why. Especially if Medicare/Medicaid is involved, there is some ruling about property if they are paying for care, they can take her property to offset the cost of long term nursing care.

I really don't know exactly what your situation is and I can't even remember the details of my own - but we were told we could get in a lot of trouble for trying to do this. I think it was because my son would have become totally responsible for capital gains tax on the difference between what I paid for the property and what he eventually sold it for, and not the appraised value at the time of transfer.

So you would become liable for the capital gains on the original 15k of value that she paid for it way back when and however many hundreds of thousands of dollars it is worth now. I don't think it was a state thing, either, I think it was a federal thing.

There MUST be a better way than that.

Besides which, all the tax stuff has been drastically changed. Better go with a pro ASAP, then get a 2nd or even 3rd opinion.
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Old 02-08-2018, 12:18 AM
 
5,908 posts, read 2,026,969 times
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Convert the trust to a grantor trust and have it basically go to you (as beneficiary) and the total value is going to be under the gift tax lifetime exclusion cap. Then you as trustee can mortgage and/or rent the property to pay her current expenses, thereby reducing the value of the estate (not that it matters for tax purposes, since the entire estate won't even hit the estate tax threshold). Unfortunately you waited too long to do this - because there is a look-back period of 2 or 3 years for state/medic-aid so you have no other way to protect her assets from the high expenses of memory care. If you had transferred this years ago the house would be out of her estate and not counted against the resources available to pay for care.

Not to be unkind, but as others have said...the time horizon here is not very long. Just don't compound the estate planning issues and also subject the estate to a taxable event this close to the finish line.

Get a trust attorney that specializes in elder law to help you craft the proper legal arrangements here.
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Old 02-08-2018, 12:18 AM
 
8,979 posts, read 8,118,034 times
Reputation: 19497
Quote:
Originally Posted by The Dells View Post
Have the property appraised by a certified appraiser.
Have your mother gift you the property as an advance on your inheritance.
Sell the property. There will be no capital gains as you will be stepped up. Your mother can leave up to $5.6 million to her heirs and pay no federal estate or gift tax. You will have used up $750,000 of the inheritance exclusion.
Gift up to $15,000 per year back to your mother without having to pay a gift tax.


Run this by your accountant first before you schedule an appraisal.


Your accountant will probably charge around $400 as the IRS will need to be notified of the transaction.


If you have siblings then divide the inheritance up and each can gift your mom up to $15,000 per year without having to pay a gift tax.
You are overlooking the gift tax due less $14,000 per heir when she makes that gift to her heirs. You cannot make a gift today as early gift from an estate to beat taxes. The gift becomes gift taxable on day it is made.
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