buying house from parents, minimizing potential capital gains

[shenson2000]

Hello,

Last year I moved my parents out of their old house because it was in such a state of disrepair. I bought a house, in my name, for them to live in. Something had to be done about the old house, so I began fixing it up so it could be sold. I've put about $40k into fixing the house up. My parents would like to sell the house to me for their payoff amount (about $45k) and then I could sell the house myself. I am concerned about having to pay too much capital gains tax if I do this. I could probably sell the house for $140k once I finish repairs. Since I've put money into the house, I wouldn't want to pay capital gains on the delta between what I pay them ($45K) and a sales price of $140k because that wouldn't accurately reflect my costs. Any suggestions?

What is the name of your state (only U.S. law)? I live in Washington, the house in question is in Oregon.

 

[FlyingRon]

There are more issues here than just capital gains if your parents are up in the senior range. You'd best talk to an advisor about this whole thing. Your delta between the below market amount you paid them and your sales price (less any capital improvements you made as well as stuff you did immediately prior to the sale to get it ready for market) is a capital gain.

Of course you can dodge some of that by using it for your personal residence for two years.

 

[ShyCat]

I don't believe capital improvements made before someone owns a house count towards the new owner's basis in that house. In effect, the OP made a $40,000 gift to his parents.