Best way to sell this land?

[coolmarden]

What is the name of your state?We live in California, but the land is located in Montana.

My parents owns 22 acres in Montana. It's basis is about $30k and is potentially worth $600k. Is there a way to increase its basis in order to reduce the amount of capital gains for my parents? I've read about a marital deduction but i'm not sure exactly how it works and if it'd work in this sitution.

They are planning on retiring soon and would like to build on some land they own in Alaska and also buy a house in Hawaii with the money they make off the sale. Are there any tips you can give us to help us keep more of this money? Thanks.

Marden

PS, I was referred to this thread from other real estate thread. They told me to say this so I don't get in trouble for double posting! Thanks!

PPS, I was reading up on the unified estate/gift tax. Say the land was in my fathers name...could he then give the land to my mother or I at the higher basis which we could then sell for very little if any capital gains?

 

[divgradcurl]

Maybe with this back up at the top abezon or Snipes will see it...

PPS, I was reading up on the unified estate/gift tax. Say the land was in my fathers name...could he then give the land to my mother or I at the higher basis which we could then sell for very little if any capital gains?

No. A gift of property does not change its basis -- the person who receives the gift gets it at the same basis as the giver. Not only that, but if the house is given away, then there may be a gift tax involved as well (at least, if he gave the house to you -- if he gave the house to his wife, no gift tax comes into play).

Heres a pretty good overview of gifting: http://www.turbotax.com/articles/TheGiftTax.html

Maybe someone else will have a more creative way around the capital gains tax...

 

[abezon]

You get to exclude $250,000 of gains/owner on the sale of a primary residence every 2 years.

Taking the long view, their best way to avoid the taxes is to sell their current house & exclude up to $500,000 of gains on it. They put a cheap house on the MT land & live there as their primary residence for 2 years, then sell that place. They will be able to exclude $500,000 of the gain from the MT land from their income. Everytime Mom curses the ________ in the double wide, she says to herself, "I'm saving $75,000 in taxes, I'm saving $75,000 in taxes, I'm saving $75,000 in taxes."

Plus, it just has to be their primary residence -- they have to spend over 1/2 their time there. They can still spend lots of time in another home they like better. Added benefit: becoming MT residents could save them CA state taxes. Always a good thing! Consult a CA state tax pro for details on what would be taxable if they were MT residents.

 

[coolmarden]

Thanks Div & Abe

Thanks for the help guys. I'm sure my mom WILL be cursing if they decide to live on the property!

I was hoping my father could give the property to my mother with an increased basis and offset his lifetime gift credit of $1,000,000, but it looks like that isn't allowed.

Capital gains is I think 9% in CA on top of the 15% Federal so it may be wiser to move to Alaska or Hawaii first. They may have a lower rate. Anyway, i'm going to keep my eyes open for anything else. Thanks again for your help guys and have a Happy New Year.

Marden