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Did that just change with Trumps bill? The 500k exclusion part on a residence lived in for 2 years.....
I’m thinking you could transfer to an heir, have the heirs live in it for a couple years to get the 500k exclusion for living in a primary residence. I’m honestly not sure of the specifics, but a neighbor recently went into a nursing home, and the kids now own the house and intend to sell in a couple years. They are in the same situation....CA homethats appreciated 900k.
Nope. It was changed about a decade ago. The exclusion only counts from the cost basis from the day you declare it your primary residence. If I have a vacation home I bought years ago for $100K that's worth $500K now, I can move to it now. If I sell it for $600K in a few years, I can exclude that last $100K. The first $400K between the $100k and the $500K is capital gains.
I'm impacted by that law change. I bought my vacation home in 1993. I was always planning to game my residence when I retired to live there for a few years and then sell it tax-free. Even worse, it's in Vermont where the state taxes gains on non-primary residence as regular income. I'm going to get slaughtered when I sell.
Nope. It was changed about a decade ago. The exclusion only counts from the cost basis from the day you declare it your primary residence. If I have a vacation home I bought years ago for $100K that's worth $500K now, I can move to it now. If I sell it for $600K in a few years, I can exclude that last $100K. The first $400K between the $100k and the $500K is capital gains.
I'm impacted by that law change. I bought my vacation home in 1993. I was always planning to game my residence when I retired to live there for a few years and then sell it tax-free. Even worse, it's in Vermont where the state taxes gains on non-primary residence as regular income. I'm going to get slaughtered when I sell.
Oh. Gotcha. That makes sense. Thanks for the clarification.
The trust can sell YOU the property for a price that added to the cost basis of the property, uses up her capital gains exclusion (250K), then either apply the difference from that to FMV to the lifetime gift exclusion, so your cost basis would be 250K plus her cost basis. Then you could mortgage or rent the property to raise the money for current expenses. That of course sticks you with a low cost basis of your own and you'll likely owe cap gains tax yourself when you sell the property - although of course, the laws or your situation could change and the exemption amounts could be raised. For example if you're married you will get 500K cap gains exclusion instead of only 250. I don't know how much the house is worth but sounds like that would be approaching FMV.
Again...just talk to a trust and tax pro, they will work out the most favorable structure for leveraging or selling your moms assets.
I just read a website dated 2017 and it appears I cannot avoid the capital gains tax by having my mother gift the property to me under the parent/child exclusion. The article describes a situation like mine and the expert said the child is on the hook for capital gains taxes. No mention was made of the 5.49 million exclusion. Here it is:
You mean, if your mom just sells the property outright? I'd get a second opinion if I were you.
Yes, if she sells the property outright she must pay capital gains. The capital gains tax can only be avoided if she passes away and the property goes to her heirs. Then it gets the step-up in basis to its current value and a sale would not generate capital gains taxes. It might generate the Medicare tax of 3.8% but that's minuscule compared to the Federal and state. That's what the CPA said and that's what all the websites from CPA's I read say. Many exotic ideas are out there but you can get into trouble real quick with the IRS if they look like evasion. Most are challengable by the IRS and believe me when you fight the IRS you lose.
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