Psst... Ready to join TalkBass and start posting, make new friends, sell your gear, and more?  Register your free account in 30 seconds.

Any US Tax Experts Out There?

Discussion in 'Off Topic [BG]' started by LajoieT, Sep 25, 2004.


  1. LajoieT

    LajoieT I won't let your shadow be my shade...

    Oct 7, 2003
    Western Massachusetts
    OK here's the rough situation. My mother inhereted a house from an elderly deaf woman she has cared for for 30 years. My mother currently does not own a house, she sold hers 4 years ago and moved into an in-law apt with my sister. She is also still working as a school teacher (she plans on retiring next year) When she sells the house, is the $$$ from the sale considered "Income" or is there some other classification for it since it was basically an inheretence? However it is classified, how will it affect her income tax? Her current income level is around the $40-50k level and the house is valued in the $95k range.

    Any help or a push toward where I might find more information would be greatly appreciated.
     
  2. Ericman197

    Ericman197

    Feb 23, 2004
    Iowa
    Did you inherit it yet, or are you in the process of doing so? You may have to pay estate taxes before you receive the house regardless of it's value, but in this case, that's unlikely. When you sell the house, you will have to pay Capitol Gains Tax on any profit you make. For example, if the court valued the house at $85,000 and you sell it for $100,000, you're going to have to pay taxes on the $15,000 you "profited." The taxes on that $15,000 would be about $3,750; Capitol Gains Tax is roughly 25% depending on who's in power ;)
     
  3. Ericman197

    Ericman197

    Feb 23, 2004
    Iowa
    Yeah, there are plenty of complications. We saved about $50,000 doing a 1040 exchange. Talk to your accountant.
     
  4. ZonMaster

    ZonMaster

    Jun 18, 2004
    maybe Kansas
    1031 exchange?

    Here in the land of Oz any residence that has been primary residence for 3+ years isn't subject to capital gains tax. Don't hurry into anything. Expensive professional advice is cheaper than screwing up. Ditto on the CPA!
     
  5. Ericman197

    Ericman197

    Feb 23, 2004
    Iowa
    I believe it was a 1040, but a 1031 sounds close enough.
     
  6. RAM

    RAM

    May 10, 2000
    Chicago, IL
    Capital gains tax is only on capital investments. A house is a capital investment if the owner invested in it. Inherited property doesn't qualify for capital gains tax; it qualifies as estate or gift tax.
     
  7. LajoieT

    LajoieT I won't let your shadow be my shade...

    Oct 7, 2003
    Western Massachusetts
    Hey all, Thanks for the info/guidance. I was hoping there was an easy answer, but I shouldn't expect that from the US tax code Should I?

    Joshua, I am near CT (in southeast MA actually, 1/2hr N of Hartford) but I'm sure I can find a CPA around here who can help us out.

    The house has already been inhereted and we are closing on the sale this Friday (Real Estate prices have gone crazy. This house is in VERY bad shape. Needed to be painted in the 60's and wasn't :eek: and it sold for nearly what I paid for my house about 9 years ago!!!)
     
  8. Ericman197

    Ericman197

    Feb 23, 2004
    Iowa
    Whoah, you didn't fix it up before hand? That could be a huge mistake. A $50,000 investment now could yield you an extra $200,000 in the sale ( random figures, but I'm assuming that the house needs major work and is also selling for a ridiculously low price because of that ).
     
  9. RAM

    RAM

    May 10, 2000
    Chicago, IL
    I agree.

    If the house is in bad enough shape and not sold *as is*, the buyer could easily back out of the contract based on an inspector's opinion that the house is in disrepair.
     
  10. LajoieT

    LajoieT I won't let your shadow be my shade...

    Oct 7, 2003
    Western Massachusetts
    Yes we sold the house "As Is" and due to the location of the house (not a great area, Avg. house value $90-125k) The house is appraised at $78k and we listed it at $99.5k. It sold for $100.5k. We don't really have the time or commitment to do the fixing up, and it didn't cost us anything (except my mother's time caring for the edlerly couple who lived there) In the end we figured that we could not be sure to recap any investment we made in it beyond the value of the house. It would need to be completely gutted and re-done if it were me doing it. We did consider fixing it up and renting it, but we don't want to be landlords either. All of our lives are pretty full and I've been hard pressed to get over there once a month all summer just to mow the lawn. I don't want to have to go over on Christmas morning to see what's wrong with the water heater/etc.

    Thanks for the advice tho, we had thought of it but decided against it.

    BTW, all the inspections are done, It had termites in one area which cost us $800 to get repaired (a $100 repair if it didn't need to be a licenced termite damage contractor!!!) Passed everything else fine, we had to put in smoke detectors (the couple who lived there were deaf so they never put any in) and we were very upfront with the Real Estate Agents that we didn't want to hide anything. I was even there the night the couple buying it came to look at it (we were taking down the garage that had been hit by a falling tree about 20 years ago.) and talked to them a bit about the house in general.
     
  11. mattmcnewf

    mattmcnewf

    May 27, 2004
    Bah so much tax money going to Lazy people.
     
  12. Ericman197

    Ericman197

    Feb 23, 2004
    Iowa
    Such is life. No one likes the current complex system, but when the idea of a flat tax is brought up, everyone runs and hides ;)
     
  13. LajoieT

    LajoieT I won't let your shadow be my shade...

    Oct 7, 2003
    Western Massachusetts
    Well if anyone is interested, it turns out that it is not taxable in any way. In order for the estate to be taxable it needs to be in excess of $650k (the estate, not just our inheretence from it) and since the house was the only tangible asset it was well under that. Also, the value of the estate would be considered to be whatever we could get for the house, not the apprased value, so the amount above the appraised value is not even considered capital gains since the house was inhereted, not purchased.

    Sweet, Now to get ahold of an archetect to design our Master bedroom/bathroom suite!!!! No more kids sitting on the toilet talking to me while I take a shower!!!