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Capital Gains question on sale of house

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steffb503

Member
What is the name of your state (only U.S. law)? NY
I own property in NY. I have owned and lived here for 20+ years. I am married but the deed is in my name and my sister's name. I got married 3 years ago but did not add my wife to the deed because I knew we were planning on selling.
Do I get the exemption for being married even though her name is not on the deed? The $500,000 exemption.
If my sister removes her name from the deed for little or no money can she avoid the capital gains tax?
Is there a time frame?
What is the percent I would pay?
 


LdiJ

Senior Member
What is the name of your state (only U.S. law)? NY
I own property in NY. I have owned and lived here for 20+ years. I am married but the deed is in my name and my sister's name. I got married 3 years ago but did not add my wife to the deed because I knew we were planning on selling.
Do I get the exemption for being married even though her name is not on the deed? The $500,000 exemption.
If my sister removes her name from the deed for little or no money can she avoid the capital gains tax?
Is there a time frame?
What is the percent I would pay?
This is a bit of a quirky situation. Before trying to figure it all out, are you going to have more than a 250,000 capital gain? Remember, its not the price the house sells for that matters, its the difference between basis (original purchase price plus the cost of major improvements), and the sales proceeds (sales price minus selling costs) that is your capital gain. So, if you bought the house for 200k, and put 50k into it over the last 20 years in major improvements (new roof, new windows, new HVAC, etc) and sold it for 500k, that would only be a 250k capital gain, and you would definitely be eligible for that exclusion.
 

steffb503

Member
Yes very quirky!
Property was given to me 20+ years ago for" love and affection"
I have gone from run down uninhabitable buildings to 7 rental units, my primary residence and a working farm.
How do I even begin!
I have been offered $700,000 for the property!
 

tranquility

Senior Member
I have owned and lived here for 20+ years. I am married but the deed is in my name and my sister's name. I got married 3 years ago but did not add my wife to the deed because I knew we were planning on selling.
Do I get the exemption for being married even though her name is not on the deed? The $500,000 exemption.
You get the full exemption if you file a joint return with your wife in the year of sale even if she did not own the property.

If my sister removes her name from the deed for little or no money can she avoid the capital gains tax?
I don't know what you mean. Do you mean she is gifting the property to you? If so she should file a gift tax return. If there is some arraignment for her to gift the property to you for some money later, it is a sale.

Is there a time frame?
Nope. If the deal is you will pay the money back to her for the purported gift, not only is the sale at the time of the agreement, but she would pay imputed interest for the time you held her money.

What is the percent I would pay?
For the sale? Long term capital gain rates for the amount realized less the basis less the full exclusion amount.
 

tranquility

Senior Member
This is a bit of a quirky situation. Before trying to figure it all out, are you going to have more than a 250,000 capital gain? Remember, its not the price the house sells for that matters, its the difference between basis (original purchase price plus the cost of major improvements), and the sales proceeds (sales price minus selling costs) that is your capital gain. So, if you bought the house for 200k, and put 50k into it over the last 20 years in major improvements (new roof, new windows, new HVAC, etc) and sold it for 500k, that would only be a 250k capital gain, and you would definitely be eligible for that exclusion.
No quirkyness. Full exclusion if a joint return. (If wife also lived on property during the time required and was not excluded because of a prior sale within the last two years.)
 

tranquility

Senior Member
Yes very quirky!
Property was given to me 20+ years ago for" love and affection"
I have gone from run down uninhabitable buildings to 7 rental units, my primary residence and a working farm.
How do I even begin!
I have been offered $700,000 for the property!
Just because your primary residence is on the property does not mean you get the exclusion for the entire amount. The other rental units are not part of your personal residence. As to if the "working farm" is, would depend on all the facts. I would think most of it would not be included as your personal residence.

In other words, there will be an allocation between residence and business property. You need to see an accountant as there are other issues to consider like depreciation that will make the calculation difficult.
 

steffb503

Member
OK bear with me for a moment.
Let's say I sell for $700,000, I will get the $500,000 exemption for being married. I will owe capital gains on a maximum of $200,000 at a rate of 14%?
Am I correct on that ?
 

tranquility

Senior Member
OK bear with me for a moment.
Let's say I sell for $700,000, I will get the $500,000 exemption for being married. I will owe capital gains on a maximum of $200,000 at a rate of 14%?
Am I correct on that ?
No. Not only is that not the rate federally, it does not include how NY would tax things.

Also, the exemption only applies to your personal residence. There has to be an allocation between your residence and business property here. Just because your residence sits on a property does not mean the entire property is going to be considered your personal residence.

But, for the part of the sale that is your personal residence, if you and your wife file a joint return in the year and you both fulfill the lived in requirements and neither is tainted by a previous residence sale within two years, the full exemption would apply.
 

LdiJ

Senior Member
OK bear with me for a moment.
Let's say I sell for $700,000, I will get the $500,000 exemption for being married. I will owe capital gains on a maximum of $200,000 at a rate of 14%?
Am I correct on that ?
No, you are not correct.

Let me give you an example:

Value of the rental units are: 300,000
Value of the working farm is: 200,000
Value of your actual residence is: 200,000

In that example the maximum capital gain exclusion would be 200,000. That of course is assuming that you have zero basis, which is not accurate. Your basis in the property is the basis of the person who gifted it to you, plus any major improvements you have made to the property. Lets say that the basis for the entire property is 200,000.

In that case, the capital gain would be as follows:

Rental unit: 220,000 no exclusion
Working farm: 142,000 no exclusion
Your actual residence: 142,000 exclusion

In that case your maximum exclusion is 142k because that is the maximum capital gain that can be excluded.

Now, if the farm portion is a hobby farm, then that might be part of your personal residence. Have you been treating it as a regular working farm for tax purposes or have you been treating it as a hobby farm?
 

FlyingRon

Senior Member
With rental units and a business, chances are there was or should have been depreciation deductions involved, that's another fly in the ointment. Steff needs to sit down with a competent tax advisor and go over everything and see what to do next. SHe's not going to be able to explain it to us in sufficient detail to give a precise answer.
 

LdiJ

Senior Member
With rental units and a business, chances are there was or should have been depreciation deductions involved, that's another fly in the ointment. Steff needs to sit down with a competent tax advisor and go over everything and see what to do next. SHe's not going to be able to explain it to us in sufficient detail to give a precise answer.
You are right, we hadn't addressed depreciation recapture and that one can be a biggie when there is lots of gain.
 

steffb503

Member
OK I went to an accountant. We worked it all out.
I have only one question. Since the deed is JWROS, if she removes her name today will I still meet the 2 year residence requirement!
 

LdiJ

Senior Member
OK I went to an accountant. We worked it all out.
I have only one question. Since the deed is JWROS, if she removes her name today will I still meet the 2 year residence requirement!
Are you talking about your sister who is the 1/2 owner? If so, why would she want to remove her name? That would mean that she would be giving you a huge gift and would have to file a gift tax return. That doesn't necessarily mean that she will have to pay gift tax as its unlikely that she is anywhere near her lifetime exclusion for gifting, but why would she give you such a gift?
 

steffb503

Member
If we have a new deed is that considered new ownership?


She paid nothing for this property. I have been on the deed since 1988. I put her on because I was very ill and thought I might die.
 

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