Home sale exemption? ? ?


R

Ray

My friend is an 81-year-old single woman who owns a house that should sell
for $800,000.

How much capital gain would she pay on such a sale?

I know it would be preferable for her to pass on the house to heirs, but she
might not have that option.

========================================= MODERATOR'S COMMENT:
We need to know how long she has lived there as her main home, and
what her cost basis is. If it was jointly owned and her husband died,
that changes things.
 
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N

Nick Dixon

Ray said:
My friend is an 81-year-old single woman who owns a house that should sell
for $800,000.

How much capital gain would she pay on such a sale?

I know it would be preferable for her to pass on the house to heirs, but
she might not have that option.
========================================= MODERATOR'S COMMENT:
We need to know how long she has lived there as her main home, and
what her cost basis is. If it was jointly owned and her husband died,
that changes things.
************>
121 Exclusion

Section 121 of the Internal Revenue Code, which is often referred to as the
121 exclusion, generally allows homeowners to sell real property held
(owned) and used (lived in) as their primary residence and exclude from
their taxable income up to $250,000 in capital gains per homeowner, and up
to $500,000 in capital gains for a married couple filing a joint income tax
return.

Primary Residence

The 121 exclusion can only be used in conjunction with real property that
has been held and used as the homeowner's primary residence. It does not
apply to second homes, vacation homes, or property that has been held for
rental, investment or use in a trade or business.
 
A

Arthur Kamlet

************>
121 Exclusion

Section 121 of the Internal Revenue Code, which is often referred to as the
121 exclusion, generally allows homeowners to sell real property held
(owned) and used (lived in) as their primary residence and exclude from
their taxable income up to $250,000 in capital gains per homeowner, and up
to $500,000 in capital gains for a married couple filing a joint income tax
return.

In the event one spouse dies, and Sec 121 is otherwise met,
the surviving spouse has two years from date of death to sell
and claim the full 500,000 after accounting for step up.


So surviving spouse may file Single and still claim the 500,000
amount.
 
R

Ray

Arthur Kamlet said:
In the event one spouse dies, and Sec 121 is otherwise met,
the surviving spouse has two years from date of death to sell
and claim the full 500,000 after accounting for step up.


So surviving spouse may file Single and still claim the 500,000
amount.
Thanks for the responses.

The property has been primary residence for 33 years. Purchase price was
$135,000. Improvements $50,000. Jointly owned until husband's death in 1981.
Widow has lived there continuously since that time.
 
A

Arthur Kamlet

Thanks for the responses.

The property has been primary residence for 33 years. Purchase price was
$135,000. Improvements $50,000. Jointly owned until husband's death in 1981.
Widow has lived there continuously since that time.

Her gain less exclusion of $250,000 is long term taxable gain.


Her gain is her sales price less (adjusted cost basis plus improvements).


Adjusted cost basis depends on whether this is a community property state
or not. If a community property state, the cost basis is stepped up to
the market value on date of husband's death. Otherwise half the cost basis
is stepped up and the other half is based on the original cost. Add
improvements to cost depending when they ocurred.

If she can afford to take back the mortgage and treat this as
an installment sale, she pays tax on the gain only as she receives
it over time.

Long term gain rates are likely to go up, so that's another
consideration.
 
D

D. Stussy

Arthur Kamlet said:
Her gain less exclusion of $250,000 is long term taxable gain.


Her gain is her sales price less (adjusted cost basis plus improvements).


Adjusted cost basis depends on whether this is a community property state
or not. If a community property state, the cost basis is stepped up to
the market value on date of husband's death. Otherwise half the cost basis
is stepped up and the other half is based on the original cost. Add
improvements to cost depending when they ocurred.
The AMOUNT of the step-up is affected by the community property status of
the state. The fact that there is a step-up occurs regardless of the type
of state:

Community property: 100% revaluation in 1981. Adjustments before the
death date are ignored.
Statutory property: 50% revaluation in 1981 + 50% of existing adjusted
basis (as of 1981). [NOT necessarily original cost]
 
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R

Ray

Thanks -- that tells me what I needed to know, which is that she is a far
better candidate for a reverse mortgage or standard homeowners' loan with
the idea of passing on the house to her heirs.

-- Ray
 

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