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Old 03-14-2017, 09:22 AM
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Capital gains and a gift from my mother

Hopefully someone here can give me a bit of advice. I?ll try to make this as short as possible so bear with me while I attempt to explain the situation

My question: What options do I have or what process can I go through to reduce my tax liability when receiving a gift from my mother with the sale of property

Backstory: My mother at one point was dating a guy that found himself in a bind with some property he owned, IRS was going after his stuff for back taxes. My mother bailed him out and in return he transferred 2 pieces of land to her. Years and years later she decides she wants to sell them to help me with the purchase of a home on property I own (not the same property). However, after looking at the sell price, 50k in California, with all the fees associated with the sale including lawyer fees and capital gains she really isn?t getting much out of it and all in all it will not be enough to buy much of a home. At this point we are thinking she will net 25k out of the sale, if not less.

Another thing to note is that the buyer is planning on paying her in two separate transactions, one this year and one next year

I?ve done a bit of research on it and it seems there may be a way to avoid capital gains if she were to re-invest that money into another property but how does my new home fit into that or the fact that I own the property (I?ve got a mortgage on it).

I was originally planning on using the money to buy a modular home at around 60k with the money I am getting out of this sale as a down payment but ?? with that amount shrinking it will be harder and harder to get the financing needed

Can anyone give me any advice?

Thanks



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Old 03-14-2017, 02:38 PM
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Originally Posted by Decaturfamilytx View Post

Backstory: My mother at one point was dating a guy that found himself in a bind with some property he owned, IRS was going after his stuff for back taxes. My mother bailed him out and in return he transferred 2 pieces of land to her. Years and years later she decides she wants to sell them to help me with the purchase of a home on property I own (not the same property). However, after looking at the sell price, 50k in California, with all the fees associated with the sale including lawyer fees and capital gains she really isn?t getting much out of it and all in all it will not be enough to buy much of a home. At this point we are thinking she will net 25k out of the sale, if not less.

Another thing to note is that the buyer is planning on paying her in two separate transactions, one this year and one next year

I?ve done a bit of research on it and it seems there may be a way to avoid capital gains if she were to re-invest that money into another property but how does my new home fit into that or the fact that I own the property (I?ve got a mortgage on it).

I was originally planning on using the money to buy a modular home at around 60k with the money I am getting out of this sale as a down payment but ?? with that amount shrinking it will be harder and harder to get the financing needed
Backstory: My mother at one point was dating a guy that found himself in a bind with some property he owned, IRS was going after his stuff for back taxes. My mother bailed him out and in return he transferred 2 pieces of land to her. Years and years later she decides she wants to sell them to help me with the purchase of a home on property I own (not the same property). However, after looking at the sell price, 50k in California, with all the fees associated with the sale including lawyer fees and capital gains she really isn?t getting much out of it and all in all it will not be enough to buy much of a home. At this point we are thinking she will net 25k out of the sale, if not less. Another thing to note is that the buyer is planning on paying her in two separate transactions, one this year and one next year==>> Receiving installment payments on a land sale from the buyer over several years could help you avoid a large lump sum payment that would raise your tax bracket and your tax liability this year.
Instead of selling a property and investing in another one, which could generate a capital gains tax, many real estate investors conduct what's called a 1031 Exchange. Also called an in-kind exchange, this type of transaction allows the real estate owner to defer capital gains taxes by selling one property and replacing it with another, similar one within a specified period.

I?ve done a bit of research on it and it seems there may be a way to avoid capital gains if she were to re-invest that money into another property but how does my new home fit into that or the fact that I own the property (I?ve got a mortgage on it).==>>No; If you held the property for more than one year, the profit from the sale is generally treated as a long-term gain and taxed at a maximum rate of 15% in 2016 if your tax rate is higher than 15% or 0% if your tax rate islower than 15%. If you owned the property for a year or less, the gain is usually considered short-term and is taxed at ordinary income rates as high as 35%



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Old 03-14-2017, 03:20 PM
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so....... for someone that doesn't understand much of that what option would I have? Considering she is already in the process of selling it



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Old 03-14-2017, 05:16 PM
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Originally Posted by Decaturfamilytx View Post
so....... for someone that doesn't understand much of that what option would I have? Considering she is already in the process of selling it
Gifts are not taxable income to the recipient; so
basically, you as a donee are not liable tax for the gift money from your mother



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Old 03-15-2017, 08:40 AM
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yes but how about for her? How can she sell the property and gift me the most amount without this OUTRAGOUS amount of tax



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Old 03-15-2017, 01:46 PM
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Originally Posted by Decaturfamilytx View Post
yes but how about for her? How can she sell the property and gift me the most amount without this OUTRAGOUS amount of tax
As said since she sells it in installment sale, the IRS allows her to defer gains on major sales of property with an installment sale agreement. This arrangement permits her as a seller to declare a prorated portion of her capital gains over several years, as long as the proper paperwork is completed during the year of the sale;so as mentioned previously, whether or nor she needs to pay gain tax depends on her tax rate. If she held the property for more than 1 year, the profit from the sale is generally treated as a long-term gain and taxed at a maximum rate of 15% in 2016 if her tax rate is higher than 15% and 0% if her tax rate is lower than 25%.



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