Capital Gains

[Sareal]

What is the name of your state (only U.S. law)? Ohio

My husbands grandmother has not filed taxes in several years. She is 77 years old, and stopped filing several years ago due to her only income being social security.

I have done taxes (basic ones, for family and friends) for a few years now, so granny asked me to take a look at hers this year ...

She and grampy bought a house in Indiana in 1969 (they have always lived in Ohio, the Indiana home was used as a vacation home). Grampy died several years ago. She sold the Indiana house in May of 2008. The house was purchased for $8000 in 1969 and sold for $75,000 ... a capital gain of $67,000... with her owing $6000+ in federal tax, and $2000+ in state tax.

Granny, however, thinks that because she is 77 years old, she should not have to pay capital gains tax, or that a person is entitled to one "free" capital gain in their lifetime, or that there has to be something out there that I have not been able to find in my researching on the subject, that would allow her to not have to pay such a high capital gains tax.

Can someone please offer me a little guidance on this? Thanks in advance!

[anteater]

Granny, however, thinks that because she is 77 years old, she should not have to pay capital gains tax, or that a person is entitled to one "free" capital gain in their lifetime..

Sort of like a senior citizen discount or a mulligan, eh?

Hints:
How has title been held?
Step up in cost basis upon inheritance.
Improvements.

Dig, dig, dig....

[davew128]

Originally Posted by anteater

Hints:
How has title been held?
Step up in cost basis upon inheritance.
Improvements.

Dig, dig, dig....

None of which is worth the posters time and energy to research as its a complete waste of time with the facts given.

OP, Google principal residence exclusion and no she doesn't have to file a return.

[tranquility]

Anteater is right. This is not a principal residence and 121 does not apply. Odds are there was a step-up at death and the capital gains will be much less.

[20pilot]

I think you are in over your head. This is not a simple case. I would strongly recommend that you refer her to a professional tax accountant (no H&R Block and similar do not qualify).

If you do not know all the appropriate deductions, she may end up paying too much taxes. Worse than that, if you take deductions that do not apply, she could be in trouble for for not paying. The few hundred dollars you would spend is money well spent.

A professional is not someone who knows everything -- a professional is one who knows what she does not know. Be professional, even if she is not paying you!

[LdiJ]

Originally Posted by Sareal

What is the name of your state (only U.S. law)? Ohio

My husbands grandmother has not filed taxes in several years. She is 77 years old, and stopped filing several years ago due to her only income being social security.

I have done taxes (basic ones, for family and friends) for a few years now, so granny asked me to take a look at hers this year ...

She and grampy bought a house in Indiana in 1969 (they have always lived in Ohio, the Indiana home was used as a vacation home). Grampy died several years ago. She sold the Indiana house in May of 2008. The house was purchased for $8000 in 1969 and sold for $75,000 ... a capital gain of $67,000... with her owing $6000+ in federal tax, and $2000+ in state tax.

Granny, however, thinks that because she is 77 years old, she should not have to pay capital gains tax, or that a person is entitled to one "free" capital gain in their lifetime, or that there has to be something out there that I have not been able to find in my researching on the subject, that would allow her to not have to pay such a high capital gains tax.

Can someone please offer me a little guidance on this? Thanks in advance!

Your Granny is remembering an old rule that wouldn't apply in this case because the home was not her principal residence.

I agree with the others, you need a tax professional to handle this one to make sure that the correct taxes will be calculated and paid....and as far as state taxes are concerned, to the correct state.

Odds are that she does get a stepped up basis which could mean that she would pay no federal capital gains tax this year, because of this year's rules about capital gains for lower income people. Its possible that she may owe tax to both Indiana and Ohio however.

Bottom line, this isn't a DIY project and she needs professional assistance. Look for a local tax office that is open year round. They tend to have the larger number of experienced professionals.