Title transfer before sale of property?

[JennRick]

What is the name of your state?NY
Hi. My husband's mother has a piece of property (house has been delolished) and it is not her primary residence. She would like to transfer ownership to her son (my husband) and her daughter. It is stated to be in divorce papers dated back to 1974 and Mom has it stated in her will. With that being said. Both parties need this money to buy homes. My question is... Is this the best way to go? We are in the process of listing the property ($450,000) and after realtor and closing fees...the rest would be split 50/50. This would be under the $250,000 cap. gains tax right? Is there money or taxes that I am missing? How will this pan out? Mom does not want any part of the selling, real estate blah blah so she wants to transfer before selling. Should we hold off until the transfer of ownership? If so, how long? Any insight? I know I kind of bounced around a bit. I hope I didn't confuse anyone more that I already am! Thanks Jenn

 

[anteater]

Since it is not the primary residence of mother, son, or daughter, there is no exclusion from capital gains tax. So, the options are:

1) Have mother sell it, pay capital gains at the long term rates, and gift the proceeds to son and daughter. Mother files gift tax return.

2) Transfer to son and daughter. Mother files gift tax return. Son and daughter sell and pay capital gains (almost certainly) at the long term rates.

The fun part will be figuring mother's cost basis.

 

[JennRick]

Since it is not the primary residence of mother, son, or daughter, there is no exclusion from capital gains tax. So, the options are:

1) Have mother sell it, pay capital gains at the long term rates, and gift the proceeds to son and daughter. Mother files gift tax return.

2) Transfer to son and daughter. Mother files gift tax return. Son and daughter sell and pay capital gains (almost certainly) at the long term rates.

The fun part will be figuring mother's cost basis.

Oh no! What do you think? What are the long term rates if transferred? How much are we looking at? What is "cost basis?" Oh <sigh> I knew this was going to be bad. My husband and I are just making now. I don't think we could handle another bill. This was supposed to help us not hurt us. Maybe we should....well do what now?!?!? Thanks for your help! Jenn

 

[pojo2]

Look the poster told you under these scenarios SOMEONE is going to pay capital gain taxes!

 

[JennRick]

I understand that much. How much are we going to have to pay? How do I calculate the cap. gains tax so I know what I have to look foward too. All the profit? A little? That would be my question at this point.

 

[anteater]

The capital gain is the difference between the net sales proceeds and the adjusted cost basis.

The federal long term capital gains tax rate is either 5% and/or 15%. It depends on your other income. To simplify, the amount of long term capital gain that brings your taxable income up to the top of the 15% tax bracket is taxed at 5%. The remaining amount of long term capital gain is taxed at 15%. This is federal. I do not know NY income tax, but I would guess that there would also be some tax due to Governor Pataki.

Since it appears that Mother received the property in a divorce settlement and that a house on the property was demolished and since we are talking a selling price of $400K+ with gift tax consequences, I strongly suggest that you and mother visit a tax professional.

 

[JennRick]

Thank you very much! I am strongly and I mean strongly going to be on the phone with one in the next hour (waiting for hubby to get home from work). I appreciate the breakdown of the cap. gains tax info. Our cap. gains tax (if Mom transfers deed into my husband's and sis-in-law name before selling)...then we my hubby and I would only be liable for the tax on half. Am I right? So that would be around $200K. So is it safe to say we are looking at 10-20K in tax? We don't make big bucks...heck not even medium bucks. Thanks again! Jenn

 

[anteater]

So is it safe to say we are looking at 10-20K in tax?

As a sheer guess, I would say to figure on the top end of that range. Much will depend on what you can figure out on mother's cost basis. And remember to ask the tax pro to consider any gift tax consequences for mother.

Good luck.

 

[JennRick]

Thanks so much again. You have been very helpful.