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Old 04-25-2011, 09:07 PM
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Unhappy California capital gains on out of state family farm

Wife owns 33% of a family farm in Texas and kids each own around 8.5% in trusts established in Texas. Family is contemplating a move to the Bay Area where it is desired that children and father (who owns no land) become residents at the least in order to qualify for in state UC tuition.

Question: Can the CA capital gains be avoided should the property be disposed of while in residence in the state? Are any constructs available to shield the proceeds? What if the family moved back to Texas prior to a sale? What if the wife stayed "domiciled" in Texas?

Any help is greatly appreciated.



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Old 04-26-2011, 01:32 AM
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“Question: Can the CA capital gains be avoided should the property be disposed of while in residence in the state? Are any constructs available to shield the proceeds?”--->I guess it depends on the situation; as you can see, there is no CGs tax in Texas on capital gain on the sale or exchange of real property in TX. As full year residents of TX ( or nonresidents of CA)your income that you earn in TX is NOT subject to CA tax. So you are NOT subject to CA income tax on the CGs on the sale of the property in TX. However, if you are full year residents ( as you meet the 183 day SPT test) during the year in CA, then you are liable for CA state tax on your CGs in TX on the sale of the property in TX.
However, for federal level, if you sell the property in 2011,you will likely be paying capital gains tax at either 0% or 15%(depending on your personal marginal tax rate; 0% as long as your tax bracket is lower than 25% ; 15% as long as your marginal tax rate is higher than 15%).
Please visit the Website here; Capital Gains State Tax Rates 1031 exchange $550 Segregated Accounts Bonded and Insured Since 1994 1031 oil 1031 Exchange Tax Tips
“ What if the family moved back to Texas prior to a sale?”--->As you move back to TX as full year residents of TX (or Non-residents of CA), then you are NOT subject to CA tax on your CGs in TX.
“ What if the wife stayed "domiciled" in Texas?”---->It also depends on the situation; assume that you are full year resident( and nonresident of TX) and your spouse is a full year resident of TX( and nonresident of CA), then you need to file your CA tax as MFS as your spouse is a Non-resident of CA. And your spouse doesn’t need to file her TX return. Both you and your spouse can return your federal return as MFJ or MFS. As CA( like TX) is one of the community property states, some or all income earned by one spouse may be community income in CA. As a general rule, that means the tax rules will treat this income, your CGs in TX, as if each spouse earned half of it. Since you file your CA return as MFS, each of you has to report half of the community income. This mean s that you MUST report half of the CGs in TX as your taxable income in your CA return UNLESS the your spouse inherited the family farm before marriage, I mean UNLESS the farm is her separate property.



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