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purplesage · 05-17-2022, 08:05 AM

Good morning,
I have been reading posts for years and now am wondering if you guys can help me with some questions I have.
I have retired in the last 2 years and my mom died 2 years ago. She had a second home and added me and my brother on as joints tenants.
We want to sell it now and will have to pay 60,000 in capital gains.
We looked at keeping it and renting it out but that isn't allowed.
I have been hearing about Charitable remainder trusts which would save us from paying the capital gains but not sure if this is a good option.
Has anyone had experience with this?

Thanks so much

OldShooter · 05-17-2022, 09:31 AM

DW spent decades in the trust business, so I have heard lots of war stories.

Sounds like you missed the basis stepup on your mom's home. Too bad. Who says you can't rent it out? HOA or someone?

CRTs are complex and a lot depends on personal context, income, and assets of both you and your brother-in-law. SGOTI is not a reliable source of information because he does not have the whole picture and may not be aware of possible wrinkles in your state's laws. Doing internet homework to get educated is great, but you are talking about serious money here and spending a tiny percentage on a good trusts & estates attorney is probably a wise idea. If you have a CPA that you use, that might be another good resource at least for referrals to expert tax-oriented CPAs and good attorneys..

Dash man · 05-17-2022, 10:36 AM

Quote:

Originally Posted by purplesage

Good morning,

I have been reading posts for years and now am wondering if you guys can help me with some questions I have.

I have retired in the last 2 years and my mom died 2 years ago. She had a second home and added me and my brother on as joints tenants.

We want to sell it now and will have to pay 60,000 in capital gains.

We looked at keeping it and renting it out but that isn't allowed.

I have been hearing about Charitable remainder trusts which would save us from paying the capital gains but not sure if this is a good option.

Has anyone had experience with this?

Thanks so much

I’m not sure, but you may be able to get the step up basis on your mom’s share of the home. It might reduce your capital gains. Check with an accountant.

Sunset · 05-17-2022, 11:42 AM

If you have to pay $60K in Capital gains (maybe that's not true as Dash man points out), I'm estimating the sale price of the house is approximately $300 -> $400K , depending upon your other income.
Long Term Capital gains are taxed at very low rates.

I don't think, avoiding taxes is a great reason for some financial decision by itself.

If this home wasn't there, would OP still be considering putting ~$400K of stock into a Charitable remainder trust ?

purplesage · 05-17-2022, 06:24 PM

Thanks for the answers, I talked to an estate lawyer but I may want to talk to a tax lawyer as i have heard that about getting the stepup basis on my moms from other online lawyer posts. I would not consider this option if it wasn't for the capital gains.
I will talk to another expert to make sure I can't get the stepup.

Markola · 05-17-2022, 08:49 PM

My career is in philanthropy, where Charitable Remainder Trusts are common. One should approach such instruments as having helpful secondary tax benefits if one’s primary motivation is to give to charity. The numbers don’t usually add up if the primary intent is tax avoidance.

purplesage · 05-18-2022, 06:48 AM

Markola, thanks for the reply, this is good info!!

ERD50 · 05-18-2022, 07:08 AM

Quote:

Originally Posted by Dash man

I’m not sure, but you may be able to get the step up basis on your mom’s share of the home. It might reduce your capital gains. Check with an accountant.

The OP states that Mom passed two years ago, so that would be the date for the step up in basis. It's possible that the house increased in value quite a bit in 2 years, so maybe (stress *maybe* - we need OP to chime in) the step up has already been factored in?

It's also not clear how OP came up with the $60,000 in cap gains tax - is that combined with sibling, or each? And, as mentioned earlier, was this calculated as a LTCG?

-ERD50

purplesage · 05-18-2022, 07:29 AM

ERD50,
I came up with the 60,000 by talking to an estate/wealth lawyer, the 60,000 is combined.
I also read that the date of moms death would be the basis but this guy said it would be the original purchase date, maybe I need to try another lawyer

REWahoo · 05-18-2022, 07:32 AM

Quote:

Originally Posted by purplesage

ERD50,
I came up with the 60,000 by talking to an estate/wealth lawyer, the 60,000 is combined.
I also read that the date of moms death would be the basis but this guy said it would be the original purchase date, maybe I need to try another lawyer

Shouldn't you consult with a tax accountant rather than an attorney?

Dash man · 05-18-2022, 07:37 AM

Quote:

Originally Posted by purplesage;

ERD50,
I came up with the 60,000 by talking to an estate/wealth lawyer, the 60,000 is combined.
I also read that the date of moms death would be the basis but this guy said it would be the original purchase date, maybe I need to try another lawyer

It’s the purchase cost plus capital improvements that will set the cost basis for the two of you. The value of the property at the time of your mom’s death will be the cost basis for your mom’s share. Did you get an appraisal done at the time of her death?

ERD50 · 05-18-2022, 07:52 AM

Quote:

Originally Posted by purplesage

ERD50,
I came up with the 60,000 by talking to an estate/wealth lawyer, the 60,000 is combined.
I also read that the date of moms death would be the basis but this guy said it would be the original purchase date, maybe I need to try another lawyer

+1 on the two previous posts.

It seems this attorney doesn't know tax law, or there is something not being communicated.

And again, if there is a long term cap gains on the step up basis at death, you really need to plug that into a tax program to understand the hit. Your personal tax situation will affect it. A considerable amount of LTCG can be under the limit for Fed tax anyhow, and above that is just 15% of the gains, until you get into a high income level.

Now the skeptic in me has me wondering - was it this same attorney talking up the CRT? Maybe he's looking for the fees to set one up for you and sibling?

-ERD50

OldShooter · 05-18-2022, 08:05 AM

I heard it many times from DW, where mom has given the house to the kids before mom died therefore eliminating the possibility for a step up. So that may be the case here if the brothers were joint owners at moms death. If mom was still at 1/3 owner at her death the step up may be available on her share but maybe not on the other two shares. As has been said, this is a problem to hand to the experts.

Sunset · 05-18-2022, 11:23 AM

The $60K LTCG is a super rough approximation by a lawyer, who probably didn't have access to the 2 brother's tax returns... so it's wrong.

I certainly think, the Mother's 1/3 share will reduce any gain. Then there is the selling costs to subtract, finally divide the too high $60K by 2 , and this leaves less than $30K per brother.

As pointed out, LTCG is first at 0%, for quite a bit, and then at 15% for each brother.

Seems to me, the number per brother is going to be closer to $22K as an incredible approximate guess.

I have to wonder, does OP's brother also have the great fear of LTCG, maybe OP's brother just wants his share and will pay his $22K in extra taxes ?

ERD50 · 05-18-2022, 11:43 AM

Quote:

Originally Posted by Sunset

... I certainly think, the Mother's 1/3 share ...

Ahhh, I missed that the 2 siblings were joint owners of the house (edit - *with* the Mother, that's what I missed). So my posts regarding the step up apparently only applies to the Mom's 1/3rd, as you say.

So it seems they need to go figure the cost basis for their 2/3rds based on, .... all sorts of things? I suppose you need to know the value when the siblings were put on as owners. Did that need to be documented as a gift? How long ago was that? Or do they just get the original cost basis, since it wasn't sold to them?

And then you've got capital improvements and allowed expenses to consider
which can help reduce the gains. Yes, probably need a tax guy (not necessarily an attorney?), and/or do a fair amount of research on-line.

Good luck.

-ERD50

Dash man · 05-18-2022, 12:40 PM

Quote:

Originally Posted by ERD50;

So it seems they need to go figure the cost basis for their 2/3rds based on, .... all sorts of things? I suppose you need to know the value when the siblings were put on as owners. Did that need to be documented as a gift? How long ago was that? Or do they just get the original cost basis, since it wasn't sold to them?

-ERD50

When gifted or added to the deed, the original cost basis plus capital improvements is the cost basis.

purplesage · 05-19-2022, 07:56 AM

REWahoo, yes, thanks, I think i will try to find a tax accountant

purplesage · 05-19-2022, 07:58 AM

Dashman, Yes we did get an appraisal at her death, but the guy I talked to kept saying we had to use the original date of purchase. He did mention the improvement costs could be added, but said we couldn't take her share of stepup