Capital Gains Tax

[Bubbabull]

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

North CarolinaWhat is the name of your state (only U.S. law)?

 

[Bubbabull]

About six years ago my mother signed over to me for a $1.00 a duplex apartment that she rented out. She got tired of dealing with renters and the up keep of the two units.

I have done a large amount of improvements over the last six year and now am at the point of thinking it's not worth it. Experiencing problems with collecting rent, renters moving in and out, damage to units, etc.

Units in the area have sold for around $100,000 and I am considering selling but am concerned about paying high capital gains tax. Since the purchase price was $1.00 and if sold for $100,000 would the capital gains amount be so high that I should just hold on to it.

I'm not interested in living in the unit for two years so that it would be considered my primary residence since it is located in a really bad neighborhood.

 

[FlyingRon]

Frankly, a sale for $1 will probably be looked at as a gift and not a sale. In that case you adopt her basis (She probably should have filed a gift tax return as well, though no tax was likely due).

You subtract from the sales price the purchase price and any capital improvements you've done plus any costs directly related to the sale. That's your gain. You qualify for long term treatment of 15% on the gain.

How much did your mother originally pay for the property?

 

[Bubbabull]

She actually inherited it from her husband. I looked up the property records and it shows the unit was purchase in 1978 for $14,000 and the sales amount from my mom to me was $.00 (zero) So it must have been considered a gift.

 

[FlyingRon]

If it was owned exclusively by him before it was inherited, you need to figure out what the FMV was at the time of his death. That's most likely the basis (plus capital improvements done since).

 

[HappyWanderer]

You need to see a tax guy. Figuring the basis of a rental property is not really going to be easy.

 

[FlyingRon]

You need to see a tax guy. Figuring the basis of a rental property is not really going to be easy.

Well it's not all that difficult. What is difficult is dealing with depreciation and recapturing that.

 

[HappyWanderer]

The guy thinks his basis is a dollar. What are the odds he knows how to figure the basis of a rental property?

Do you?

It would take a minute to write out the formula to consider the basis. Enlighten us.

 

[FlyingRon]

Would you like to phrase things without insults? The depreciation should have run from the time it was converted into a rental unit. Don't have the dates or I would be able to compute it. Chances are we'll have to take the depreciation now and the recpature it. The recapture is straight forward after that provided I know the tax bracket of the owner.

But if that is too hard for you, then yes by all means go see a tax advisor.

 

[HappyWanderer]

I may not know a lot, but I know you don't need to know the "tax bracket" to make the recapture of depreciation calculation. When was it converted into a rental unit? What facts would indicate that? What if he didn't take depreciation? I know the answers because I looked them up.

I'm sorry you consider bluntness for rude. It just is a response in kind when some here think some unsupported opinion should count for something because they have a bunch of posts.

 

[FlyingRon]

I may not know a lot, but I know you don't need to know the "tax bracket" to make the recapture of depreciation calculation,When was it converted into a rental unit? What facts would indicate that? What if he didn't take depreciation? I know the answers because I looked them up.

If he didn't take the depreciation then the imputed depreciation has to be taken to figure the basis. But if you're going to do that, you might as well 1040x the depreciation deduction to actually take it, and hat's why I need the bracket and the dates. The recapture is figured at 25% for real estate these days. I have no idea what you are niggling about on the date of conversion. You're not eligible to depreciate it when it is not a business property and you must when it is.

I'm sorry you consider bluntness for rude. It just is a response in kind when some here think some unsupported opinion should count for something because they have a bunch of posts.

Stating corrections if you have them, is blunt.
Not adding any useful information other than your taunt in both rude and nonproductive. Once again you've done nothing other than hurl innuendo without providing information as to why the answer is incorrect or what legitimate point you have to make.

 

[HappyWanderer]

My post finally got some useful information out. Thank you for that.

You don't need the "tax bracket" information for a 1040x. You need that, or those, previous years' returns you are amending. Nice try at covering though.

Circular reasoning on when to depreciate. If the rental isn't ready to be rented because of the substantial improvements, is it a business property?

So, are we still at easy? What do you think the accuracy of all these calculations will be to a person who thought his basis was $1 and/or that capital gains taxes were high? (Wait'll next year.)

Why would you tell such a person it's not that difficult or imply he doesn't need to see someone who does this for a living? The name of the site is freeADVICE. Not free facts.

 

[LdiJ]

My post finally got some useful information out. Thank you for that.

You don't need the "tax bracket" information for a 1040x. You need that, or those, previous years' returns you are amending. Nice try at covering though.

Circular reasoning on when to depreciate. If the rental isn't ready to be rented because of the substantial improvements, is it a business property?

So, are we still at easy? What do you think the accuracy of all these calculations will be to a person who thought his basis was $1 and/or that capital gains taxes were high? (Wait'll next year.)

Why would you tell such a person it's not that difficult or imply he doesn't need to see someone who does this for a living? The name of the site is freeADVICE. Not free facts.

You know, I don't always 100% agree with Flying Ron on everything, but you are definitely talking out of the side of your mouth.

I will encourage this OP to consult a tax professional because his thread has been so confused by misinformation (much of it from you) that I doubt that anyone is willing to try to clarify it.

 

[HappyWanderer]

1. Do you need tax bracket information to complete a 1040X?

2. Do you need the year in question's filed tax return to complete a 1040X?

3. Do you need to know if something is a business property before you know if you can depreciate it?

4. If a business property (in this case a residential rental) is not ready to be rented because of substantial improvements being done, should it be depreciated?

5. "Talking out of the side of [my] mouth" implies I don't know what I'm talking about. From the context I used before I'd say 1=no, 2=yes, 3=yes, 4=no. What do you say?

Please point out the incorrect information I posted. You may use what I implied based on questions I asked based on the context.

(By the way, thank you for agreeing the guy should see a tax preparer. Wouldn't the step-up in basis when the person who gifted it over to the guy inherited it depend on how title was held at that time? Still simple?)

 

[HappyWanderer]

Uh huh, that's what I thought. I was able to look up the information is less then four days and I would guess you could too.

Is it really the policy "senior members" to accuse people of being in error without backing it up?