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okay I guess I didn't get that. Wow that sucks. So it doesn't sound like it benefitted her much to live in a house for 45 years and then rent it out. She'll be paying capital gains on 550k. I would guess her income between rent and her social security would put her in the 15% bracket. So she'll have to pay 15% of 550k just in capital gains?
Seems it would have benefitted her more just to sell the house.
okay I guess I didn't get that. Wow that sucks. So it doesn't sound like it benefitted her much to live in a house for 45 years and then rent it out. She'll be paying capital gains on 550k. I would guess her income between rent and her social security would put her in the 15% bracket. So she'll have to pay 15% of 550k just in capital gains?
Seems it would have benefitted her more just to sell the house.
No , at that level the capital gains tax is 20% plus a 3.80% Obamacare surcharge , plus state and local taxes as well as for sure ,thousands more dollars in a Medicare surcharge...that has nothing to do with the Obamacare surcharge
When did her husband die? Doesn't California have a stepped up basis for spouse. who inherit joint property? If she really wanted to sell, she would have consulted a CPA already. Maybe you need to start looking around.
No , at that level the capital gains tax is 20% plus a 3.80% Obamacare surcharge , plus state and local taxes as well as for sure ,thousands more dollars in a Medicare surcharge...that has nothing to do with the Obamacare surcharge
I thought you don't pay capital gains taxes on your primary residence. If she just lived in the house from the 70s until 2015 and then sold it, she'd have to pay capital gains on that?
Sorry I'm confused.
edit: I'm remembering the 250k/500k exemption now. So if it was only her primary residence, she'd get the 250k exemption.
evening sun her husband died I believe 8-10 years ago. She mentioned it to me and I can't remember exactly. She lived in the house a few years after he died and she's been out for 5 years now.
I agree she doesn't sound ready to sell at all. They got our hopes up because the daughter made it sound like she was ready to just sell it now. I had no idea they hadn't even begun the process of finding out what taxes they will be paying. We're continuing our search.
If you could see this lot up on the hill with the spectacular views of mountains that are snow covered in winter, you'd see why we want this place. It's amazing the beautiful lots they built starter homes on in the 70s. The lot alone would be 600k now.
Last edited by TheLonelyGoatherd; 02-13-2020 at 07:48 PM..
I thought you don't pay capital gains taxes on your primary residence. If she just lived in the house from the 70s until 2015 and then sold it, she'd have to pay capital gains on that?
Sorry I'm confused.
edit: I'm remembering the 250k/500k exemption now. So if it was only her primary residence, she'd get the 250k exemption.
evening sun her husband died I believe 8-10 years ago. She mentioned it to me and I can't remember exactly. She lived in the house a few years after he died and she's been out for 5 years now.
I agree she doesn't sound ready to sell at all. They got our hopes up because the daughter made it sound like she was ready to just sell it now. I had no idea they hadn't even begun the process of finding out what taxes they will be paying. We're continuing our search.
If you could see this lot up on the hill with the spectacular views of mountains that are snow covered in winter, you'd see why we want this place. It's amazing the beautiful lots they built starter homes on in the 70s. The lot alone would be 600k now.
Then her tax basis for the house should go up & help her reduce the gain, if you can get a value on what house was worth when he died. But she needs to speak to a professional. Internet speculation is useless.
Since the daughter will inherit it on a stepped up basis, I wonder if there could be some sort of contract for deed sale where the Final sale wouldn’t go through until the LL dies. If the daughter doesn’t want to keep the house for herself, she will certainly reap more money this way.
I thought you don't pay capital gains taxes on your primary residence. If she just lived in the house from the 70s until 2015 and then sold it, she'd have to pay capital gains on that?
This has been said many different ways by many different posters. It's not really that complicated.
I think evening sun is on to something. If the ownership transferred to her on her husband’s death, for tax purposes it did so at the stepped up market value at that time. That would mean, yes, if she were to sell it before she died, she would potentially owe capital gains tax but it would only be on the difference between the property’s value when she became the sole owner 8-10 years ago and its value at the time of sale. Which could probably still be $200,000, but that’s a whole lot better than $550,000.
They might be looking at a total tax bill of $50,000 from the transaction. If this house is something you really want, something really special, I’d perhaps be offering to pay a decent chunk of that as part of a purchase proposal. The daughter gets the most financial benefit by just waiting to inherit, but maybe it’s worth something to them to free up some cash now while the mother is still alive and can enjoy it. You both could save by not having a realtor involved. They wouldn’t have to manage property anymore, you wouldn’t have to go through looking, buying, and moving. It could be good for everybody.
It’s worth getting some professional advice yourself and then present them with a well researched proposal, something real that that they can respond to, not just a passing conversation. The worst thing that happens is they say no.
This has been said many different ways by many different posters. It's not really that complicated.
I went back and edited it that I got that part. Really though I've read many times that there aren't capital gains on primary residences. I think it's a common misconception. I think most people just don't make enough money in selling their house to trigger capital gains so they think that you don't pay any. It's a common misunderstanding because I've read it numerous times in financial facebook groups.
Last edited by TheLonelyGoatherd; 02-14-2020 at 02:02 AM..
I think evening sun is on to something. If the ownership transferred to her on her husband’s death, for tax purposes it did so at the stepped up market value at that time. That would mean, yes, if she were to sell it before she died, she would potentially owe capital gains tax but it would only be on the difference between the property’s value when she became the sole owner 8-10 years ago and its value at the time of sale. Which could probably still be $200,000, but that’s a whole lot better than $550,000.
They might be looking at a total tax bill of $50,000 from the transaction. If this house is something you really want, something really special, I’d perhaps be offering to pay a decent chunk of that as part of a purchase proposal. The daughter gets the most financial benefit by just waiting to inherit, but maybe it’s worth something to them to free up some cash now while the mother is still alive and can enjoy it. You both could save by not having a realtor involved. They wouldn’t have to manage property anymore, you wouldn’t have to go through looking, buying, and moving. It could be good for everybody.
It’s worth getting some professional advice yourself and then present them with a well researched proposal, something real that that they can respond to, not just a passing conversation. The worst thing that happens is they say no.
I actually really like this idea. It's something my husband and I would be willing to do. I just hope the mother is on board with the sale and not just getting pressured by the daughter. I don't want to take an old lady's house from her.
And that makes sense that she'd pay taxes based on her time as single and not the entire time.
I find the conversations here very helpful because while we do plan on speaking to our own CPA, I think it's always good to have some knowledge of a topic before speaking to a pro. This way I'm not relying on him to give me 100% of the information I need to know and I will have a better understanding of what he's telling me.
It's really kind of sickening how much money it costs to sell a house.
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