Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 09-20-2011, 09:42 PM
Junior Member
 
Join Date: Sep 2011
Posts: 3
Should I rent out a property that I will inherit and probably sell, that has appreciated in value.

My mom bought her home for $10,000. The house is now assessed at $168,000 and the land is valued at $502,000. She is 95 and now is in assisted living. I have rented the house for the past year to help pay her expenses. It is not entirely necessary to rent, because her pension and savings will probably carry her through. For tax purposesI've been advised not to sell untill after my mom's death because the house would be valued on the date of her death



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 09-21-2011, 11:25 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,236
“ For tax purposesI've been advised not to sell untill after my mom's death because the house would be valued on the date of her death.”---->I am sure that your mom is NOT subejctt o federal/ state estate(inheritance) tax due to the presence of unified wealth transfer tax credit. In its current form, the estate tax only affects the wealthiest 2 percent of all Americans. As you can see, whenever you inherit property, that inheritance then becomes your property(Instead of the fair market value at the date of death, the personal representative for the estate could choose to use an alternate valuation date six months later. Hoever, this is done ONLY when the value of the estate assets has declined and the estate tax liability can be reduced by choosing a later valuation date). If you sell the property for a financial gain, you will have to pay capital gains taxes on that piece of property. Even though it might sound like a losing proposition for those that inherit property, you do get one advantage when it comes to selling inherited property. When yiur mom dies and passes property onto you, the cost basis of that property then changes. The cost basis will change automatically to the fair market value of that property on the day that mom died. Therefore, you are essentially getting around paying for any capital gains taxes on the appreciation that occurred during the lifetime of the deceased.For example, let's say that you inherited $670,000($502,000 +$168,000) worth of pty. that was originally purchased at $10,000. Whenever you receive it as an inheritance, the cost basis is going to change to $670,000, NOT $10,000. If you sold it for that amount, you would have no Gains taxes to worry about. If you sell it for $770,000, then your lTCG is $100,000($770,000-$670,000) and as long as your marginal tax rate is lower than 25% in 2011, your CG tax is $0. If yur tax bracket is higher than 15%, then your CG tax liability will be $1,5000; $100,000*15% in 2011.ALSO REMEMEBR: the house that your mother gave you when she died is a primary residence. That’s good news. When you sell it as your primary residence, thenyou will be able to keep up to $250,000 in profits tax free, or up to $500,000 if you’re married. So, even though your tax bracket is higher than 15%, you STILL do NOT pay any CG tax, $1,5000, in this particular example, due to LTCG tax exclusion rule. However, if you rent it out as a rental property, you can turn a rental house you own into your primary home, and, by doing so, make the sale eligible for the tax exclusion. If it suits you, you can move into your rental house, live in it for two or more years, and then sell it and pay no tax on your gain if it’s under the exclusion limits.Then you can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of two years. You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home.


Last edited by Wnhough : 09-23-2011 at 03:40 PM.


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #3 (permalink)  
Old 09-23-2011, 03:07 PM
Junior Member
 
Join Date: Sep 2011
Posts: 3
Thumbs up Hold on, rent out, then move back in.

Quote:
Originally Posted by tinfoiled2 View Post
My mom bought her home for $10,000. The house is now assessed at $168,000 and the land is valued at $502,000. She is 95 and now is in assisted living. I have rented the house for the past year to help pay her expenses.
Thank you so much, Wnhough, for your reply. TaxGuru is a great service and enormous help in sorting through confusing tax issues. Having rented the house, my best option going forward will be to move in for two years in order to make it my primary residence.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #4 (permalink)  
Old 09-23-2011, 03:42 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,236
QUOTE," The house is now assessed at $168,000 and the land is valued at $502,000. She is 95 and now is in assisted living."---> Correct; SOrry for my mistake.

ALSO " If you sell it for $770,000, then your lTCG is $100,000($770,000-$670,000) and as long as your marginal tax rate is lower than 25% in 2011, your CG tax is $0. If yur tax bracket is higher than 15%, then your CG tax liability will be $1,5000; $100,000*15% in 2011."---> Not $1,500 BUT $15,000; sorry for the typo. Good lcuk ~~



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
S Corp - Sell of Sec 179 asset Dziumdzia S-Corporation 6 06-15-2011 12:18 PM
S-corp Asset sell no income COFL S-Corporation 0 07-16-2010 10:19 AM
How to report the amount in 1099-B when I didn't sell any stocks on my own ? xtracrazy Capital Gains 0 03-27-2010 08:49 PM
Medical Study Tax Question - ADVICE APPRECIATED! taxdog Income 0 05-18-2009 07:10 PM
What is the implication if I sell property that has been gifted to me? Kathy Trusts and Gift Tax Returns 1 07-20-2008 02:28 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning