Capital Gains Tax on Non-primary Residence (Honesdale: sale, real estate, rental) - Northeastern Pennsylvania - Pennsylvania (PA) -Scranton, Wilkes-Barre, Pocono area - City-Data Forum

jlld97 · 03-08-2009, 10:24 AM

Parents sold me and my sister their home for $1 in 2000 (parents lived in the home until they passed away). The home was built around 1965. The home was sold for $140,000 (split between me and my sister). We paid utilities, taxes, repairs/improvements, etc. since 2000 while parents lived in the home. How will we be effected by capital gains taxes. (I find lots of info on the sale of a primary residence, which this was not for me or my sister.)

jlld97 · 03-08-2009, 10:28 AM

In 2000, my parents "sold" their home (built around 1965) to my sister and me for $1. Our parents lived their until their death. We paid for repairs, upkeep, utilities, improvement, taxes. etc. In September, 2008, we sold the home for $140,000 (each receiving $70,000). How will this effect our taxes. I find lots of info on capital gains on primary residence; this was not our primary residence.

mathjak107 · 03-08-2009, 11:13 AM

unfourtunetly this was a mistake parents make..... had they not sold you the house for 1.00 you would have inheirted the house at todays market value.. if it sold for todays appraised value or under no taxes would be do... however you didnt do that so your cost basis is 1.00.... its all taxable at 15% federal plus what ever the state is and if your other income reaches the amt threshold with your other income you could have amt penalty on the other income.. here in nyc you could be talking 30-40% of all the profits in total taxes if you hit the amt

you could argue that for a buck its really a gift and then your cost basis would be your fathers and you would owe taxes on everything above....

this is why i always tell people keep your kids name off the deed unless you like taxes..

the irony is folks do it alot of times to defraud medicaid.... the end result is they dont go in home and the kids end up paying rediculous taxes... or one of the kids gets divorced and the ex spouse goes after the parents home.

KarenRice · 03-08-2009, 11:16 AM

Your best bet is to contact a lawyer who specializes in real estate and taxes.

Not sure where you're located or where the house was but Atty. Nicholas Barna in Honesdale is excellent with real estate, taxes, and estate issues.

mathjak107 · 03-08-2009, 01:34 PM

karen thanks for the number, eventually ill need someone in pa to do some things for us

mathjak107 · 03-08-2009, 01:39 PM

some of the issues putting your kids on the deed can be

TAXES....no step upin cost basis on the death of the parents ... biggest issue

YOUR PARENTS HOUSE BECOMING PART OF AN EX WIFES SETTLEMENT or ex husband

LAW SUITS AGAINST THE CHILDREN AND THE PARENTS CAN LOOSE THE HOUSE

LOSS OF CREATIVE ESTATE PLANNING USING TRUSTS

LAW SUITS FROM SIBLINGS OVER OWNERSHIP

to570717 · 03-08-2009, 01:49 PM

First, consult a Tax Atty because there are differnt rules concering quit-claim deeds. that is what your folks did.

My quickest opinion, 1031 exchange. Put the 70k into a home purchase as down payment and pay zero capital gains tax.

Look it up, research it a bit then call either a CPA or a tax atty and discuss the ins and outs with them.

mathjak107 · 03-08-2009, 01:56 PM

he may not be able to do the 1031 exchange because his sister has a share and unless they do it together into one property it may not fly. there seems to be special regulations for what multiple partners have to do when one may not want to 1031 their share.... .... no question he will need a tax attorny if he contemplates an exchange,,... they can be real real tricky to pull off.... its very complex and certainly beyond my knowledge to give advice.

i think he can not roll it over directly into a principal residence but rather he will be forced to become a landlord and operate the new property as a rental for 2 years ,, then he can move in and has to live there 2 years as a principal residence ..he has to own it over all for 5 years... the other hitch is that if its a rental for 2 years and you own it five , under the new tax laws if he sells it he would be only able to prorate the 250,000 exemption such as you own it 5 years, princip residence 2 years , so he gets up to 2/5 of the 250,000 or 100,000 exempt from taxes....

found some info but its making my hair hurt

http://www.summitdaily.com/article/2...38157/1053/RSS

http://1031cpas.blogspot.com/2008/04...ip-issues.html

sci · 03-08-2009, 09:03 PM

Best bet is to find a good tax attorney/accountant and follow there lead in paying the least tax owed and pay that amount. If you have to pay 10 20 30 thousand just bite the bullet and pay in right away and consider the matter closed. You should still be walking away with a big chunk after taxes. If you try to weasel things this way and that it will come back to bit you. Then you will wind up paying big time.
I know now one likes to pay taxes but remember there is a war on and someone has to pay for the bullets

LNTT_Vacationer · 03-09-2009, 11:52 AM

Quote:

Originally Posted by mathjak107

he may not be able to do the 1031 exchange because his sister has a share and unless they do it together into one property it may not fly. there seems to be special regulations for what multiple partners have to do when one may not want to 1031 their share.... .... no question he will need a tax attorny if he contemplates an exchange,,... they can be real real tricky to pull off.... its very complex and certainly beyond my knowledge to give advice. . . .

my understanding is multiple partners must stick together. Also, replacement property must be identified within 45 days of closing and settled within 180 days and these dates are quite firm.

I think gift vs. purchase may be the way to go but it's beyond me. . . interested to hear what the "expert" tells you.