OT: selling secondary home

[Graduatedayear2early]

Doing much reading about selling a rental in the future (sell and avoid headaches/upkeep $ when compared to actual rental profit)....so much info to comprehend.


This post was edited on 3/24 8:52 PM by Graduatedayear2early

 

[charliem24]

Was just at the accountant today to get taxes done and asked him almost the exact same question. Obviously, if it's a primary residence at the time of the sale, there are no capital gains concerns. If it is rental, then the profit from what you bought the house for and what you sell it for, is taxable. Any capital improvements, closing costs at the time you purchased the home are added to the original price you paid so that reduces the profit your taxed on. Also, real estate commission when you sell is deducted, lowering the profit. You can also take depreciations when renting , but that will add to your tax burden when you sell.

I think I got that right....hope it helps.

 

[Graduatedayear2early]

This post was edited on 3/25 9:59 AM by Graduatedayear2early

 

[Crazed_RU]

No there is still cost basis to the house. You get taxed on rental income obviously separately from capital gains on the sale of the property. Not an expert in this stuff but even our govt won't claim that it can tax you on the full value of the house when you go to sell it just because it was passed down from your parents or whoever. I imagine your cost basis is the value of the home when you received it, and you pay capital gains tax on the net increase you sell it for less your cost basis at the time you took possession.

 

[PSU_Nut]

Originally posted by Graduatedayear2early:
Ok, kind of what I thought, just hazy on about how figure out what I'd actually receive. This house was inherited. So I would be taxed on every penny over a $1.

Capital gains will be based on the fair market value of the house based on the date that person died. Because you know very little of this subject matter I suggest you hire a tax attorney or another expert to help you. The money spent on that could save you thousands.

 

[DanoRU]

Originally posted by Crazed_RU:

No there is still cost basis to the house. You get taxed on rental income obviously separately from capital gains on the sale of the property. Not an expert in this stuff but even our govt won't claim that it can tax you on the full value of the house when you go to sell it just because it was passed down from your parents or whoever. I imagine your cost basis is the value of the home when you received it, and you pay capital gains tax on the net increase you sell it for less your cost basis at the time you took possession.

We sold an inherited house last year. You need a "date of death valuation" from an appraiser to determine the value at the time you inherited it. This becomes your cost basis and anything above that is your capital gain. If you rented it and claimed depreciation at some point, I don't know if any of that applies.

 

[Graduatedayear2early]

This post was edited on 3/25 10:00 AM by Graduatedayear2early

 

[DanoRU]

Correct. You would be taxed on the $50K. As I stated earlier, you should have an official appraisal to determine the actual value when you inherited it but mine was because of the death of a parent. I have no idea if tax laws are different when inheriting for different reasons.

 

[RUJohnny99]

If the person who gave it to you did not die, it's not an inheritance. It's a gift.

The giver is subject to gift taxes for the market value of the house at the time of gifting, minus the exclusion of $14,000.

 

[RUckusbuck]

To confirm, was the house your primary residence 2 out of the last 5 years?

 

[Graduatedayear2early]

Have been running hypothetical numbers with expenses

This post was edited on 3/24 8:53 PM by Graduatedayear2early

 

[BigLou]

Originally posted by Graduatedayear2early:
inherited it in 2012...parent is not deceased.

i gained rent $ for a few months (April 2012-August 2012) and has been used as residence since.


If i understand correctly, if in 2012 it was worth 100,000 and now its 150,000...do i get taxed on the $50,000 gain only.

Sorry for all these questions, i'm going to speak with a tax person. I appreciate the feedback.

You cannot inherit something from a living person. It sounds like it was a gift. If it was, your cost basis is that of the donor. Fair market value at the time of the gift is relevant to the donor but not to you as there is no step up in basis with the gift. For example, if your parents bought the house 30 years ago for $50k and put in $25k of improvements, than the cost basis is $75k.

Gifting a primary residence is something a lot of elderly do thinking it will help if they need long term care. It' usually is not a great tax strategy.

 

[PSU_Nut]

Originally posted by Graduatedayear2early:
inherited it in 2012...parent is not deceased.

i gained rent $ for a few months (April 2012-August 2012) and has been used as residence since.


If i understand correctly, if in 2012 it was worth 100,000 and now its 150,000...do i get taxed on the $50,000 gain only.

Sorry for all these questions, i'm going to speak with a tax person. I appreciate the feedback.

Definitely do because you or your parents might owe several thousands in unpaid taxes. I don't even know where to begin but you are so far lost in all of this.
This post was edited on 3/24 12:31 PM by PSU_Nut

 

[VirtualKnight]

Don't forget to include the NJ Real Estate Transfer Tax that the seller pays in your calculations. it's 1% if you move in state and 2% if you move out of state. I beleive this applies to both primary and second homes.

 

[THERAC]

If you sell it within 3 years you meet the ownership requirement of it being your primary residence thus you get a duduction of the gain of 250K single or 500K Married. IRS publication 523 - "If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement".

If you do not meet the primary residence deduction is taxed at capital gain from cost basis to selling price.

Since it was a, gift the cost basis is the same as the person who gifted it. My guess is you have a tax problem if you dont qualify for the primary residence exclusion. If you qualify for it now you may want to sell while you still qualify.

I believe whomever was gifiting it to you was trying to get it out of his/her estate and/or avoid losing it to medicad. On the medicaid end (in most states) your home is protected up to certain value (between 500K and 800K. On the estate planning end, as long as your estate is under 5.45 million there was no real reason to gift it prior to passing away (I know there might be state taxes, but that is minimal compared to captial gains). Please, please see an estate planning attorney before you start planning your estate yourself.



This post was edited on 3/24 1:28 PM by THERAC

 

[Graduatedayear2early]

^ok

So if it was last used as a rental under my name in 2012 and now on year 4 living there I could qualify (withstanding other factors).

thanks you all
This post was edited on 3/25 9:58 AM by Graduatedayear2early