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Capital Gains Tax, Please Help

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jaiwalking

Junior Member
Texas.

Okay, in May 2007 my grandmother sold a portion of some land she had inherited from her grandfather in the 60s.

She sold it for $350,000. We had no selling expenses at all.

We were told that she may have to pay a capital gains tax of $53,000!!

Her only income is the $900 or so is gets from social security each month. She's widowed and has some major medical expenses coming up and she wishes to put my sister and I though university.

Why does she have to pay so much in TAXES? Is there a way to get around paying that much?

This doesn't seem right...

Please, any advice/comments would be greatly appreciated.
 


abezon

Senior Member
She has to pay taxes on the gains, which is the difference between what she got & her basis. Her basis is whatever the land was worth when she inherited it. That's probably not much. Check old property tax assessments and newspaper ads/sales for land to get some idea of what the land was worth then.

If all she got was $900/mo SS, her maximum total income would be about $360,000 ($350k gains + $10k taxable SS). Her taxable income would be $350k (after standard deduction & exemptions, assuming she's over 64). Her tax would be $49,316. On a positive note, it's not due until 4/15/08, so don't pay it ahead of time. Grams might as well earn some interest until then.

Medical expenses are not deductible unless they exceed $27,000 (7% of AGI).

BTW, $50k taxes on $350k income is not unfair. If this were not capital gains, her tax bill would have been about $101k!

Advise her to consult a tax pro before selling any further parcels of land. She could save some significant money by doing a little tax planning next time.
 

LdiJ

Senior Member
She has to pay taxes on the gains, which is the difference between what she got & her basis. Her basis is whatever the land was worth when she inherited it. That's probably not much. Check old property tax assessments and newspaper ads/sales for land to get some idea of what the land was worth then.

If all she got was $900/mo SS, her maximum total income would be about $360,000 ($350k gains + $10k taxable SS). Her taxable income would be $350k (after standard deduction & exemptions, assuming she's over 64). Her tax would be $49,316. On a positive note, it's not due until 4/15/08, so don't pay it ahead of time. Grams might as well earn some interest until then.

Medical expenses are not deductible unless they exceed $27,000 (7% of AGI).

BTW, $50k taxes on $350k income is not unfair. If this were not capital gains, her tax bill would have been about $101k!

Advise her to consult a tax pro before selling any further parcels of land. She could save some significant money by doing a little tax planning next time.
I will add something here about the basis.....since this case goes back to the 60's, its very possible that an estate was opened when she inherited the land, therefore there may be a basis already established. Grandma needs to check and see if she has any records from when she inherited the land.
 

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