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Old 11-29-2013, 10:59 PM
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Selling a gifted home in CA

Hi. New to site and am looking for some advice on how to proceed in my situation. My wife has a family trust that her father controls. She is a Trustee on the Trust and a Beneficiary too I think...not sure. We've been living in the home here in CA for almost 9 years, and her father just gifted the house out of the Trust name to her last month. It's in my wife's name alone now, not the Trust name. No mtgs on the home to pay off when it sells. We wish to sell it now and keep the money. When it was deeded to her, the value listed on the Grant Deed was $510,000....which was way too low. Realtors are telling us home is worth $565-575K....so we have it listed at $564,900 right now. When we sell the home, what kind of taxes should we expect to pay? We are trying to avoid using the money to buy another home and are wondering if that's possible. Please help.



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Old 11-29-2013, 11:06 PM
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also...fyi...when her father purchased the home years ago in the Trust name....he paid $740K for it. So it's lost alot of value over the years we've been living in it. Dont know if that's relevant or not.



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Old 11-30-2013, 03:47 AM
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Originally Posted by jason11972 View Post

#1; She is a Trustee on the Trust and a Beneficiary too I think...not sure. We've been living in the home here in CA for almost 9 years, and her father just gifted the house out of the Trust name to her last month. It's in my wife's name alone now, not the Trust name. No mtgs on the home to pay off when it sells. We wish to sell it now and keep the money. When it was deeded to her, the value listed on the Grant Deed was $510,000....which was way too low. Realtors are telling us home is worth $565-575K....so we have it listed at $564,900 right now. When we sell the home, what kind of taxes should we expect to pay?


#2: We are trying to avoid using the money to buy another home and are wondering if that's possible. Please help.
#1;I guess the trust is revocable inter vivos trust or a grantor trust; such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)) as long as he, she, or they are still competent. A trust grantor can pass on gifts to heirs and beneficiaries. As long as the gifted home is your primary residence, then, as long as you received real property as a gift, consider living in the property for at least two years before selling the property. This will make you eligible for a capital gains exclusion of up to $500K ,as MFJ filer ,on the sale of a primary residence. Capital gains or losses on the property received as a gift are calculated with respect to the original owner's cost basis in the property. In other words, when property is given, the recipient receives both the property and the property's cost basis. The recipient also receives the donor's holding period in the property for determining whether a gain is long-term or short term.
The basis of gift property is the original owner's cost basis, plus or minus any adjustments. Typical adjustments that increase basis are substantial repairs and improvements, along with any expenses for selling the property (such as broker's commissions). Typical adjustments that reduce basis are depreciation the previous owner claimed for renting out the property. The recipient's gain or loss on the gift property will be the selling price minus this adjusted cost basis.For example, say the dj basis of the home is $500K and its FMV is $600K and sell it for $550K, then, its LTCG is $5K;$550K-$500K;however, if the FMV of the home is $550K and its adj basis(OC+other expenses as aid above) is 600K and sold it for $700K , then its LTCG is $100K;$700K-$600K if you sell it for $570K, between $550K and $600K, then no gain or loss. If you sell it for $540K then LTCL is $10K;$550K-$540K.




#2;no problem. It is up to you if you , after sellig the gifted home, buy a new one.



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Old 11-30-2013, 03:50 AM
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also...fyi...when her father purchased the home years ago in the Trust name....he paid $740K for it. So it's lost alot of value over the years we've been living in it. Dont know if that's relevant or not.
If he sells a home for less than the amount he had invested in it, he may incur a capital loss. Unfortunately, if he used the home as his primary residence, the loss isn't typically deductible on his federal income taxes. However, if he used the home for business purposes, he may be able to deduct a portion of the loss from your taxable income.



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Old 11-30-2013, 03:53 AM
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also...fyi...when her father purchased the home years ago in the Trust name....he paid $740K for it.

When a living trust purchases a house, this is carried out by the living trust trustee taking title to the house in the trustee's name. The deed on the house will list the trustee's name, followed by the designation "as trustee of the living trust." This means the trustee owns legal title to the property, but that title is always subject to the terms and conditions of the trust agreement.



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Old 12-01-2013, 03:40 AM
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Thanks for the response!
The home has been our primary residence since he purchased it in the Trust name 8 years ago....but we cannot stay another two years.

We've decided that we really have no choice....we MUST sell the home. The HOA is $435/mo...which her father was paying for us since it was in the Trust name. Now that he's deeded it to my wife he says we are responsible for paying the HOA and property taxes now along with any other maintenance needed (we've had 7 plumbing leaks in 8 years here that he's paid for). The HOA alone is too high for us to stomach so we MUST sell.
So it sounds like you're saying that since he purchased the home in the Trust name for $740K, that is his cost basis and that cost basis transfers to us. Since the home is now worth almost $200K less than that...then it means we have no capital gains to worry about and any capital gain/loss would be dealt with by him when he gifted it to us? And in addition to paying the closing costs associated to selling...we need to plan on paying roughly another $10K? Can you help me understand where that figure comes from? His purchase price was $740K 8 years ago. We've used home as primary residence that entire time. He transfers to us and along with that cost basis of $740K. Home is now listed for $565K....so the capital loss was something he absorbed when he deeded property to us. Worst case...we sell for $550K. Where does the $10K tax come from?



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Old 12-02-2013, 05:32 AM
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Originally Posted by jason11972 View Post





#1;The home has been our primary residence since he purchased it in the Trust name 8 years ago....but we cannot stay another two years.

#2:We've decided that we really have no choice....we MUST sell the home. The HOA is $435/mo...which her father was paying for us since it was in the Trust name. Now that he's deeded it to my wife he says we are responsible for paying the HOA and property taxes now along with any other maintenance needed (we've had 7 plumbing leaks in 8 years here that he's paid for). The HOA alone is too high for us to stomach so we MUST sell.





#3;So it sounds like you're saying that since he purchased the home in the Trust name for $740K, that is his cost basis and that cost basis transfers to us. Since the home is now worth almost $200K less than that...then it means we have no capital gains to worry about and any capital gain/loss would be dealt with by him when he gifted it to us? And in addition to paying the closing costs associated to selling...we need to plan on paying roughly another $10K? Can you help me understand where that figure comes from? His purchase price was $740K 8 years ago. We've used home as primary residence that entire time. He transfers to us and along with that cost basis of $740K. Home is now listed for $565K....so the capital loss was something he absorbed when he deeded property to us. Worst case...we sell for $550K.




#4;Where does the $10K tax come from?
#1;I mean in order for the sale to be exempt, the home must be considered a primary residency based on IRS rules. These rules state that you must have occupied the residence for at least two of the last five years.




#2;As long as you claim itemized deductions on Sch A of 1040, you can deduct pty taxes;however, HOA fees are not deductible as they are your ordinary expenses of living. if you rented the unit out to tenants, you could deduct it as part of your operating expenses for rental property, but it is not deductible for your personal residence




#3;Then your adj basis depends on the sale transaction; assume that his OC was $740K and its current FMV is $540K, then if you sell over $740K, it’d be your LTCG. Say you sell it for $750K then your taxable LTCG is $10K and UNLESS your tax bracket is higher than 15%, your CG tax liab. is $0 If your marginal tax rate exceeds 15% , then you need to pay $1.5K as CG tax;$10K*15%.
If you sell it between $540K and $740K, then no gain or loss so you do not have to pay CG tax.

If you sell it lower than $540K, then it’d be your LTCL;say you sell it for $530K, then your LTCL’d be $10K; $540K-$530K.

#4; The IRS does not allow you, the seller, to deduct the closing costs from your tax return. Only the property taxes allocated to you are deductible. The other closing costs adjust the net proceeds from the sale and that is used in determining any gain and therefore any capital gains tax, if any, that would be due.


Can you help me understand where that figure comes from? His purchase price was $740K 8 years ago. We've used home as primary residence that entire time. He transfers to us and along with that cost basis of $740K. Home is now listed for $565K....so the capital loss was something he absorbed when he deeded property to us. Worst case...we sell for $550K. “==..Pleae read above , then I guess you’d understand what it mean

Where does the $10K tax come from?”=>>$10K was from the hypothetical assumption that I gave you. Please just disregard it.



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