Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-07-2015, 04:15 PM   #21
Full time employment: Posting here.
Accidental Retiree's Avatar
 
Join Date: Feb 2012
Posts: 975
Quote:
Originally Posted by AllDone View Post
Unfortunately, your 1997 property tax appraisal is useless in California! .

Thanks to Prop 13. :-)
__________________

__________________
Chief Retirement Strategist
The AR Group
Accidental Retiree is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-07-2015, 05:09 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,710
Quote:
Originally Posted by pb4uski View Post
Sell. You'll get $700k and pay ~$50k in taxes [($700k sale price - $100k basis - $250k exclusion)*15%] so you'll pay ~7% of the sale proceeds in taxes and walk away with ~$650k.

Don't forget that you can add to your basis the cost of major remodeling you have done.

To me, the tax is quite reasonable given the proceeds that you will receive.

If you rent it out and later sell it then your taxes on the proceeds will likely be higher die to depreciation recapture and and loss of the $250k exclusion.
Note that you add real estate commissions to your basis So its (700 -100 -42 (6% commission) -250)*.15 = 43k in cap gains. As with most things such as stocks commissions paid to sell increase the basis (also you may add other closing costs you pay to the commission line, and if you have the settlement statement from when you bought the house you could also add any title and escrow fees paid back then to the line)
__________________

__________________
meierlde is offline   Reply With Quote
Old 08-07-2015, 05:19 PM   #23
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 183
Quote:
Originally Posted by pb4uski View Post
Actually, now that I think of it, you may have a stepped up basis for 50% of the excess of the fair value of the home over its basis as of when you husband died, and that might eliminate the tax n part or entirely depending on the value when your husband died. This link gives a short explanation Stepped Up Cost Basis At Death Saves Taxes

So if for example, the home was worth $300k when you husband died, then, assuming a $100k original cost and $25k of improvements since your husband died, your cost basis would be $225k (50% of $300k value at husband's death + 50% of $100k original cost +$25k improvements). So if you sell for $700k, your gain would be $475k, of which $250k would be excluded and $225k woudl be taxable at 15% for a tax of ~$34k.

YMMV and you may want to get the advice of a tax CPA or tax lawyer.
It may be even better than that. CA is a community property state, so the step up in basis if the property was appropriately titled, is 100%, so both halves (not just 50%).
Basis of Inherited Property (Community and Non-Community Property) - CFP | Investopedia
Step-Up in Basis Rule-Common Mistakes | Financial Alternatives Inc

CABarb, based on where you are located, you can stop by a AARP TaxAide location during tax season (Feb-Apr) and our wonderful volunteers can help you with your taxes (for free). Google it.
I volunteer at South Bay locations here in Bay Area. PM me if you'd like.
__________________
pixelville is offline   Reply With Quote
Old 08-07-2015, 07:31 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by AllDone View Post
Unfortunately, your 1997 property tax appraisal is useless in California! .................................................. ......
This is true. Appraisal values were frozen when Prop. 13 took effect, or if you bought later, the yr that you bought. From that point on, they were allowed to increase 2% /yr so if you've owned a long time, there is no relevance to real values.

You may want to how the property was titled when your spouse passed away.
If it was titled as a joint revocable living trust or community property, it would get a full basis step up vs 50% if JTWROS. I have even heard talk that you would get the full step up if if were JTWROS if it were bought with community property funds.........but I've never heard a lawyer say that. Might be worth investigating though. And check to see if you have a signed community property agreement in
which both spouses agree that community funds were used to buy the house.

sorry, pixelville.........you beat me to it by a mile...don't know why I missed it.
__________________
kaneohe is offline   Reply With Quote
Old 08-07-2015, 07:36 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Quote:
Originally Posted by meierlde View Post
Note that you add real estate commissions to your basis So its (700 -100 -42 (6% commission) -250)*.15 = 43k in cap gains. As with most things such as stocks commissions paid to sell increase the basis (also you may add other closing costs you pay to the commission line, and if you have the settlement statement from when you bought the house you could also add any title and escrow fees paid back then to the line)
I was just trying to keep things simple for the OP but agree that any commissions paid would reduce the gain. Technically, I think commissions paid are a reduction of sales price and not an increase in basis, but either way the gain is reduced.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-07-2015, 07:36 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Quote:
Originally Posted by pixelville View Post
It may be even better than that. CA is a community property state, so the step up in basis if the property was appropriately titled, is 100%, so both halves (not just 50%).
Basis of Inherited Property (Community and Non-Community Property) - CFP | Investopedia
Step-Up in Basis Rule-Common Mistakes | Financial Alternatives Inc

CABarb, based on where you are located, you can stop by a AARP TaxAide location during tax season (Feb-Apr) and our wonderful volunteers can help you with your taxes (for free). Google it.
I volunteer at South Bay locations here in Bay Area. PM me if you'd like.
Good point. I forgot about the community property difference. Even better.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-07-2015, 08:01 PM   #27
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 183
So you may actually have no capital gains. Example:
Original purchase price: 95K
FMV when DH passed away: 400K
Stepped-up basis (community property): 400K
Remodels, investment in property: 75K
Sale price (net of commissions): 720K
Profit: 720k-75k-400k = 245k
Exemption (single): 250k
Income subject to capital gains: 245k-250k I.e. $0
Capital gains tax: $0

Seeing the market around me, 700K for single family home in Silicon Valley seems low right now! Of course, land size and location would determine it.
As someone else pointed out, if you sell this and buy a condo (or house for a lower price), you would be able to transfer your property 13 tax basis to it. County restrictions apply.
__________________
pixelville is offline   Reply With Quote
Old 08-07-2015, 10:42 PM   #28
Thinks s/he gets paid by the post
RockyMtn's Avatar
 
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,230
Don't over improve in a hot market. Just sold a house in Denver and I'm not going over the top on the typical "anal house inspector" report. Just say no. If there are things that are safety oriented fine...fix them. But if someone says your landscaping slopes towards the house or there is a crack in your sidewalk tell them they can fix it if they think it is a problem.


Home inspectors just love to point out things that most people live with every day of their lives.
__________________
FIRE'D in July 2009 at 51...Never look back!
RockyMtn is offline   Reply With Quote
Old 08-07-2015, 11:04 PM   #29
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,904
This transfer of assessment seems crazy. Is it meant to reward people for never leaving the state and punish people who move there?
__________________
Fermion is offline   Reply With Quote
Old 08-08-2015, 03:37 AM   #30
Dryer sheet aficionado
 
Join Date: Jan 2009
Posts: 27
OMG! Such great advice and information. Thanks so much for sharing your inputs and experiences. I wish I'd come here when homes were going for much less because people had bought more house than they could afford. My own neighborhood had homes standing empty for a while and some were just abandoned by their owners.

I've been wanting to sell for a long time and I did look at homes in 2005/06. The RE agents were always taking me to homes I couldn't afford at the time. I should have bought when home were less expensive. I have managed to save up and it would've been smarter to buy even 3 years ago.

When I first thought of fixing up the house, I was going to make it so it showed like a model home. Now, I'll stick to painting and flooring. The driveway has a crack but the new owners can fix that. I had thought of getting a landscaper to fix up the back yard also. We have a severe drought and the yard is brown. Hopefully, El Nino will make it greener and all I have to do is maintain it the way it is.

I truly appreciate your inputs and experiences. It has eased my mind because I was having many sleepless nights due to stress of remodeling the house.
__________________
CABarb is offline   Reply With Quote
Old 08-08-2015, 07:28 AM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Quote:
Originally Posted by Fermion View Post
This transfer of assessment seems crazy. Is it meant to reward people for never leaving the state and punish people who move there?
I agree... I'm sure it was well intended to stabilize property taxes but it seems to me that the end result is very inequitable. I like the way we do it better, where appraisals are fmv and property taxes are income sensitive.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-08-2015, 07:37 AM   #32
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Quote:
Originally Posted by CABarb View Post
OMG! Such great advice and information. Thanks so much for sharing your inputs and experiences. I wish I'd come here when homes were going for much less because people had bought more house than they could afford. My own neighborhood had homes standing empty for a while and some were just abandoned by their owners.

I've been wanting to sell for a long time and I did look at homes in 2005/06. The RE agents were always taking me to homes I couldn't afford at the time. I should have bought when home were less expensive. I have managed to save up and it would've been smarter to buy even 3 years ago.

When I first thought of fixing up the house, I was going to make it so it showed like a model home. Now, I'll stick to painting and flooring. The driveway has a crack but the new owners can fix that. I had thought of getting a landscaper to fix up the back yard also. We have a severe drought and the yard is brown. Hopefully, El Nino will make it greener and all I have to do is maintain it the way it is.

I truly appreciate your inputs and experiences. It has eased my mind because I was having many sleepless nights due to stress of remodeling the house.
Since the real estate market will affect how much you get for your present house, as well as how much you have to pay for your next house, it all evens out I think. I recently moved. The market here is on the upswing, too, so I managed to get and accept a surprisingly high offer on my house in less than a week (which is very unusual around here). It was before I had a chance to get it fixed up to sell, too. Since I got a pretty good deal on my dream house, everything worked out just fine despite the resurgence of the local real estate market. You may find this is the perfect time to sell.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 08-08-2015, 09:44 AM   #33
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,044
California taxes capital gains at ordinary income tax rates. If the net gain is $400,000, she will be writing a large check to the FTB.


What's confusing to me about this is whether this sale would drive the capital gains rate to 20 percent and if the 3.8 percent Medicare surtax applies. I would love to sell my Silicon Valley house, but I rolled the gain from my starter house into this one under the old rules plus the gain is larger.


I figured on extracting the maximum equity via a refi and renting the house out instead of selling. Let the heirs get the stepped up basis and thumb their noses at Uncle Sam and Uncle Jerry.
__________________
Another Reader is offline   Reply With Quote
Old 08-08-2015, 09:46 AM   #34
Full time employment: Posting here.
 
Join Date: Jul 2013
Location: San Diego
Posts: 699
Quote:
Originally Posted by Accidental Retiree View Post
Thanks to Prop 13. :-)
I've been informed a couple of times by non-Californians on this board that taxes in California don't work that way. It's horribly inequitable, but it is how they work.

The OP is probably over 55 given the number of years that she has owned the house, so she ought to take tax base transfer into account for her plans, if she wants to stay in CA. If she wants to leave CA, she should be prepared for much higher property taxes in her budgeting for many states.
__________________
AllDone is offline   Reply With Quote
Old 08-08-2015, 09:55 AM   #35
Full time employment: Posting here.
 
Join Date: Jul 2013
Location: San Diego
Posts: 699
Quote:
Originally Posted by Fermion View Post
This transfer of assessment seems crazy. Is it meant to reward people for never leaving the state and punish people who move there?
No, it's strictly an anti-tax measure although it was sold as making it possible for the elderly to continue living in their in high-value houses without paying increased taxes.

Prop 13 applies to commercial properties, too, so there are complicated deals where 95% of a commercial property is sold, the original owner retains 5%, and the original tax base applies to the property.
__________________
AllDone is offline   Reply With Quote
Old 08-08-2015, 11:12 AM   #36
Full time employment: Posting here.
Accidental Retiree's Avatar
 
Join Date: Feb 2012
Posts: 975
Quote:
Originally Posted by Another Reader View Post
California taxes capital gains at ordinary income tax rates. If the net gain is $400,000, she will be writing a large check to the FTB.

There is a $500,000 homeowners' exclusion for California, too, for MFJ filers,
just as with the feds, as long as you've lived in the house 2 out of the last 5 years and are over age 55 (IIRC).

OP should have $250k excluded.
__________________
Chief Retirement Strategist
The AR Group
Accidental Retiree is offline   Reply With Quote
Old 08-08-2015, 11:15 AM   #37
Full time employment: Posting here.
 
Join Date: Jul 2013
Location: San Diego
Posts: 699
Quote:
Originally Posted by Another Reader View Post
California taxes capital gains at ordinary income tax rates. If the net gain is $400,000, she will be writing a large check to the FTB.


What's confusing to me about this is whether this sale would drive the capital gains rate to 20 percent and if the 3.8 percent Medicare surtax applies. I would love to sell my Silicon Valley house, but I rolled the gain from my starter house into this one under the old rules plus the gain is larger.


I figured on extracting the maximum equity via a refi and renting the house out instead of selling. Let the heirs get the stepped up basis and thumb their noses at Uncle Sam and Uncle Jerry.
California capital gains tax are paid on the portion of profit over the $250K/$500K exclusion and range from 1-9.3% based on total taxable income, not "20%". Paying interest on a loan would quickly wipe out the advantage from not selling the property.
__________________
AllDone is offline   Reply With Quote
Old 08-08-2015, 12:04 PM   #38
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,044
I'm not looking at 20 percent for California. I live in California and the top rate used to be 9.3 percent, but I believe it was raised a couple of years ago.


What's confusing is how the federal tax rate on capital gains is computed. For example, if you are in the 15 percent federal tax bracket, your capital gain tax rate is zero, unless the gain pushes you out of the 15 percent bracket (income plus gain exceeds the 15 percent bracket limit). My question is if the gain pushes you into the top bracket, does the federal tax on the capital gain go to 20 percent, and does the Medicare surtax kick in?
__________________
Another Reader is offline   Reply With Quote
Old 08-08-2015, 12:14 PM   #39
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by Another Reader View Post
I'm not looking at 20 percent for California. I live in California and the top rate used to be 9.3 percent, but I believe it was raised a couple of years ago.


What's confusing is how the federal tax rate on capital gains is computed. For example, if you are in the 15 percent federal tax bracket, your capital gain tax rate is zero, unless the gain pushes you out of the 15 percent bracket (income plus gain exceeds the 15 percent bracket limit). My question is if the gain pushes you into the top bracket, does the federal tax on the capital gain go to 20 percent, and does the Medicare surtax kick in?
It works the same way....if the CG pushes you into the top bracket, the CG above the bottom of that bracket is taxed at 20%; the CG between that and the top of the 15% bracket are taxed at 15%; and CG below the top of the 15% bracket are taxed at 0%. For this purpose the CG is stacked on top of the ordinary income; deductions /exemptions are taken from the bottom of the stack......that is out of ordinary income first.

The Medicare surtax......do you mean the NIIT on investment income? or IRMAA, the increased premium for Medicare insurance. Both NIIT and IRMAA key on AGI
(IRMAA also adds in tax exempt income) so that the part of the home sale that is being taxed also contributes to the NIIT and IRMAA tax liability and this can happen before you reach the top bracket http://www.irs.gov/uac/Newsroom/Net-...ncome-Tax-FAQs.
__________________
kaneohe is offline   Reply With Quote
Old 08-08-2015, 12:22 PM   #40
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,044
The surtax on income. Doesn't the income used include wages and salaries, pensions, social security and the like as well as just investment income?


So if someone has a large gain after the $250k exclusion, the federal tax could conceivably be at the 20 percent federal rate plus the 3.8 percent surcharge, correct? And in California, you might have to pay the top rate on most of the non-excluded gain if you have other taxable income, correct?
__________________

__________________
Another Reader is offline   Reply With Quote
Reply

Tags
buying a new house, capital gains tax, selling a house


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
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

BB 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
Newbie question on selling stock and taxes Live Free FIRE and Money 3 11-10-2014 11:26 AM
Selling options and taxes utrecht FIRE and Money 4 10-23-2008 09:30 PM
Taxes, Taxes. Taxes mickeyd FIRE and Money 1 02-09-2008 01:18 PM

 

 
All times are GMT -6. The time now is 07:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.