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Old 11-23-2015, 05:54 PM
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Capital gains on property purchased from parents

Hi - I'm hoping that someone can answer this:

* I'm a Massachusetts resident
* In June of 1997, my mother bought a condo for $52K and used it as her primary residence for several years
* In April of 2003, my mother sold the condo to me and my brother for $100.00 (one hundred dollars)
* Since 2003, we have used the property as rental property, never lived there.
* We are now (Nov 2015) selling the condo for $97K

How are our capital gains taxes going to be calculated?



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Old 11-24-2015, 07:36 AM
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Originally Posted by mqh123 View Post

How are our capital gains taxes going to be calculated?
you need to recapture sec 1250 depreciation expenses taken previously while th e pty was used as rental pty. Sec 1250 recapture depreciation is taxed as ordinary income taxed at 25% aslongas your tax rate is 25% or higher. Your basis fot he rental home is $100 and your LTCG is $96.9K; after subtracting the amt of sec 1250 taxed as prdianry income, the rest of the amt’d be LTCG taxed at 15% if your marginal tax rate is 25% or higher. The IRS considers rental property to be business property, so you can’t just report the gain or loss on your Form 1040. You must file IRS Form 4797 ;you must complete Part III of form 4797 to determine if you have a gain. Then enter the sec 1250 deprecaiiton directly on form 8949 SCh D of 1040.
Since you owned the property for more than 1 year, you must separate the sale of the structure from the sale of the land. The sale of the land is noted in Part I, and you enter the sale of the structure there as well .
Note; you need to consider the implications of a cheaper sale price. Sicne your mother sold the home to you for less than the fair market value, the IRS will consider the difference between the home’s sale price and fair market value , $51.9K, a gift since you won ‘t repay the full amount. So your mother had to file IRAS form 709 as the gift amt of $51.9K exceeded the annual exclusion amt of $10K for 1997.Since your tax basis in the home will be lower, you may have a taxable gain if you sell the property in the future unless you qualifies for the home sale exclusion NOT applied to your situation.



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Old 11-24-2015, 09:27 AM
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Thank you! I think I'll be heading to my CPA for more detailed advice!



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Old 11-24-2015, 10:42 AM
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Originally Posted by mqh123 View Post
Thank you! I think I'll be heading to my CPA for more detailed advice!
Good idea you can contact an IRS Enrolled Agent or a CPA doing taxes in your local area for more info in detail on your issue.



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