Capital gains rate on sale of inherited home

[Camas Lilly]

No. Your inheritance was 1/3 of the $50K house that was originally handed over to the LLC; so ~$17K. That's the only part of the money that's tax free now. Everything else is an increase in value that happened after you inherited the house, so it's taxable.

So yes, you are going to owe long term capital gains tax on $208K-$17K=$191K. Some of that might fall in your 0% bracket, but obviously most of it is going to be in the 15% bracket. There might also be a small amount (less than $17K) of ordinary income in there if the LLC depreciated the buildings while it owned them, and that would be taxed at your marginal rate of 12% instead of 15%, but you won't know the exact numbers until you get your K-1 next year.

Ahh. That is what I needed to know. So whether or not I am a little above the cap gains minimum, is really going to be irrelevant. I do, however plan on having someone do my taxes this next time.

 

[OldShooter]

@Camas Lilly you mentioned that your sister has made improvements to the property and that her ownership in the LLC has been increased to reflect this. So the improvements and the ownership need to be understood. Really, all this SGOTI back and forth, though well meaning, just underlines my point that you need to hire a CPA. It will probably be a somewhat torturous path to determine your basis, but the answer is simply a number. You can probably do your own taxes once you have this number. If you elect to pay, use the same CPA to make sure it is done right. Do NOT use a storefront preparer.

And, actually, your sister has exactly the same tax basis determination problem so she may already have the answer for you. If not, you might share the cost of getting the answers you both need.

 

[Camas Lilly]

@Camas Lilly you mentioned that your sister has made improvements to the property and that her ownership in the LLC has been increased to reflect this. So the improvements and the ownership need to be understood. Really, all this SGOTI back and forth, though well meaning, just underlines my point that you need to hire a CPA. It will probably be a somewhat torturous path to determine your basis, but the answer is simply a number. You can probably do your own taxes once you have this number. If you elect to pay, use the same CPA to make sure it is done right. Do NOT use a storefront preparer.

And, actually, your sister has exactly the same tax basis determination problem so she may already have the answer for you. If not, you might share the cost of getting the answers you both need.

Thanks OldShooter. Yes she does have the exact basis. I suppose whatever tax form I receive I should be able to find the correct place to enter the information. I do my taxes on e-file and it is usually pretty easy.

 

[Gill]

@Camas Lilly Really, all this SGOTI back and forth, though well meaning, just underlines my point that you need to hire a CPA. .

There are some us, although SGOTI, are qualified to give such advice.
Gill

 

[pb4uski]

Jeesh Gill... don't let OldShooter know that.

 

[RunningBum]

What about listening to SGOTI suggest you push the IRS boundaries to the point of getting audited? Is that a good idea?

 

[OldShooter]

There are some us, although SGOTI, are qualified to give such advice.
Gill

Of course. Probably more on this forum than on some others. The problem for a poster like @Camas Lilly is to figure out which authoritative-sounding posts are from someone who is also qualified on the subject*. My favorite internet cartoon:https://en.wikipedia.org/wiki/On_th...ows_you're_a_dog#/media/File:Internet_dog.jpg

Jeesh Gill... don't let OldShooter know that.

The joke here, of course, is that @pb4 is very qualified on the subject of insurance and annuities, but someone with an insurance question would have to have read a very large number of his posts before they could safely conclude that his advice was reliable.

I'll stick to my guns on this one; tax questions, estate planning questions and many other legal questions, etc. aren't places where relying on SGOTI is wise. Most of us here are cheapskates and very DIY oriented, myself included, but that sometimes leads us into cheaping out when we should not.

*Psychologists have observed the Dunning-Kruger effect, the gist of which is that the people who know the least about a subject are also the ones who are most certain about their opinions. https://en.wikipedia.org/wiki/Dunning–Kruger_effect

 

[MichaelB]

From our community rules

Do your own due diligence! People who are professionals in a variety of fields post on this forum and share their general knowledge. Many of them are brilliant. Some are doofi. Information obtained from professionals (or from anyone for that matter) who are participants in this forum should be not be relied on when making important life decisions. Their posts are not intended to be professional advice. Their posts may not be accurate, applicable or complete for your own unique situation.

This applies to all topics. Taxes, health, insurance, and even passive investing.

Members can be a valuable source of knowledge and advice. It is up to each of us to ask the right questions and weigh the responses.

 

[pb4uski]

Absolutely. And members posing questions may unintentionally omit key information that might make a difference in the answer. But this forum is a good place for people with questions to get educated before consulting with an expert.

 

[braumeister]

I'll stick to my guns on this one; tax questions, estate planning questions and many other legal questions, etc. aren't places where relying on SGOTI is wise.

What you perhaps fail to recognize is that nobody is "relying on" such information here -- they are simply seeking opinions. Even yours may have some value.

 

[Camas Lilly]

There are some us, although SGOTI, are qualified to give such advice.
Gill

 

[Camas Lilly]

Jeesh Gill... don't let OldShooter know that.

 

[Camas Lilly]

Absolutely. And members posing questions may unintentionally omit key information that might make a difference in the answer. But this forum is a good place for people with questions to get educated before consulting with an expert.

+

 

[MRG]

Absolutely. And members posing questions may unintentionally omit key information that might make a difference in the answer. But this forum is a good place for people with questions to get educated before consulting with an expert.

+1
This place has made me smarter than I was, but you have to make your own decisions and take responsibility. One poster saved my house and DW and I from exploding. That was good advice to follow. Another told me not to do something I did. I made 350-400k by ignoring that poster. I am not a sheep.

 

[imnontrad]

The only capital gains due is the proceeds from the sale minus the stepped up basis of the home on the date of their death. Most likely, you will not only not have a capital gain but may actually have a long term loss due to the selling/closing costs.

 

[gooddog]

If I keep our taxable income below the 15% capital gains tax level, and if cash I receive from sale of inherited home is not considered income, do I have to pay 15% capital gains tax on that portion of the money that is considered gains?

If the home is inherited, and you had an appraisal done, then you should be OK on taxes - or has that part of tax law changed? It is worth noting that when a property is inherited, it is wise to get an appraisal within 30 days of title.

 

[hotwired]

Examples

Definitely on the appraisal or at least a broker's opinion. My dad had a broker's opinion of value done on his 6-unit apartment building in key West just before he died, I inherited it, ended up selling it for $200,000 less than that appraised or estimated value and was able to use that Capital loss carryforward for about seven years. It was the most ridiculous home run I'd ever been offered tax-wise. Some might say my accountant toed the line but I researched it a little and it came up legit.

 

[pb4uski]

What caused the $200k loss?

 

[Gill]

Definitely on the appraisal or at least a broker's opinion. My dad had a broker's opinion of value done on his 6-unit apartment building in key West just before he died, I inherited it, ended up selling it for $200,000 less than that appraised or estimated value and was able to use that Capital loss carryforward for about seven years. It was the most ridiculous home run I'd ever been offered tax-wise. Some might say my accountant toed the line but I researched it a little and it came up legit.

Yes, if you sold it within a reasonable time you pushed the limits. The sale price should have been the basis being a better reflection of fair market value at date of death.
Gill

 

[pb4uski]

^^^ +1 because the actual sale price shortly after death is more indicative of the fair value than the brokers value analysis.

 

[hotwired]

Reply

What caused the $200k loss?

The "broker's opinion" was 200K more than we sold it for a few months later. therefore the tax situation was that I sold something that I "paid" 200K more for than I sold it for.

 

[dixter]

it is entertaining reading all of the " experts " opinion on these subjects... just read them and take away what might or what might not work for the OP...

funny about taxes... everyone seems to do their own taxes their own way...

 

[pb4uski]

The "broker's opinion" was 200K more than we sold it for a few months later. therefore the tax situation was that I sold something that I "paid" 200K more for than I sold it for.

More likely is that the broker's appraisal was unrealistic... values rarely change that dramatically in a short period of time. As long as you don't get audited your good.

 

[Gill]

The "broker's opinion" was 200K more than we sold it for a few months later. therefore the tax situation was that I sold something that I "paid" 200K more for than I sold it for.

The IRS takes the position that a sale within a reasonable time after date of death is more reflective of fair market value than any appraisal done as of the date of death. The sale price should have been used for the basis and the expenses of sale would result in a loss. A "broker's opinion" isn't going to hold water with the IRS in this fact situation. The
IRS will clearly ignore the appraisal. I'll bet you might have taken a different position if you had sold the property at a $200K gain.

Gill

 

[RetiredHappy]

The IRS takes the position that a sale within a reasonable time after date of death is more reflective of fair market value than any appraisal done as of the date of death. The sale price should have been used for the basis and the expenses of sale would result in a loss. A "broker's opinion" isn't going to hold water with the IRS in this fact situation. The
IRS will clearly ignore the appraisal. I'll bet you might have taken a different position if you had sold the property at a $200K gain.

Gill

+1. Taking a $200K loss will fail IRS audit if they decide to audit.