Capital Gains ??

[JustMeUC]

This may be a shot in the dark, but perhaps with all the combined knowledge on here I might get an answer, so I'll give it a shot.

I was gifted a small house a month ago by a relative. Renter is in place, lease runs through 8/10. Just got a call from the next door neighbor of the rental wanting to buy the house for her granddaughter for a wedding gift. She offered $85,000 which is a fair price and can pay cash. I could probably pay the renter a grand to break the lease.

I am in the 15% tax bracket. If I decide to do this what are my options for keeping the cap gains hit down?

Any advice?

 

[LOL!]

Since the house was gifted to you, your cost basis is the cost basis that the giver had or the FMV if lower than their basis. They probably should file a Gift tax return unless the basis was less than $13,000. They probably won't owe gift tax, but that does not mean a gift tax return should not be filed.

You cannot reduce the cap gains hit from this transaction. You can do other standard things:

1. Lose money in the stock market.
2. Reduce your other income by quitting your job.
3. Donate to charity.
4. Go blind.
5. Have huge medical bills.
6. Pay lots of mortgage interest and property taxes on a huge house you cannot afford.
7. Max out your 401(k) plan contributions
8. Get married and have lots of kids. For this year, you would need to already marry someone with children if I remember human health classes correctly.
9. Etc., etc.

 

[JustMeUC]

Thanks... LOL.. I think

I don't quite understand where cap gains will be figured in this type of thing.

It will be figured on short term I assume? I am already in the 15% income tax bracket, but will selling a house for 85K be figured as income bumping up my tax bracket or will it always max out at 15% even though it is short term?

If so, What if I owner-finance over a number of years?

 

[Moemg]

You may actually have a loss depending on what the assessed value of the house was on the date of your relatives death . My late husband inherited a house valued at $350,000 but he could only sell it for $299,000 so he had a loss of $51,000 to carry over .

 

[JustMeUC]

It was not really an inheritence, but a rental house my dad was tired of dealing with. Tax value is $60,000.

 

[LOL!]

But what is your dad's basis? That will help determine the tax hit. If he depreciated the property over the years, that would reduce his basis. And you get his basis because of the gift.

I recommend you get advice from an accountant or perhaps a tax forum. Here's a tax forum:
http://moneycentral.msn.com/community/message/board.asp?board=TaxCorner