Selling a house, best way to minimize tax liability on profits? (1 Viewer)

Last year my dad was killed, probate has completed and I now own my house and my dads house.

Originally we were just gonna sell it outright. But after thinking about it, values on my house and dads house have increased.

The wife and I want to sell both houses, and use the profits above the mortgage price toward a downpayment of a newer/bigger home.

However, the .gov is gonna see the profit as income and will want a slice. What would be the best way or are there any suggestions on how to minimize the amount that goes to the .gov and maximize it toward downpayment of a new abode?

You and your wife are exempt from $250K each of profit on the sale of a house that you've lived in (primary residence) for the two out of the last five years. I'm not a CPA and could be incorrect, but that's my best recollection of the rules.

To have zero tax consequences, sell your house (assuming you've lived there two years) move into your dads house for two years...then sell it.

Spend the $100 or so and talk with a CPA. No sense paying more than is required.

Mort

Yeah I read on another forum about the $250K.

And just found out minutes ago by a friend who has a tax attorney friend who states, taxes on the sale of a house you do not live in are based on the value of the house at the time of "inheritance" and not the actual profit.

In this instance my dad paid $42,000 for the house, but the market value for this year has been around $58,000.

We are planning on selling around the latter amount which means that $16,000 would be shielded from taxes, anything above is taxable, but in our case very negligable and makes me a happy camper.

WOW...$60K for a whole house????? That wouldn't get you much more than a septic system in California (well, maybe the real little house that sits on top of it too)

Mort

That's why I don't live in CA.

LOL. My family just sold a 5000 square-foot piece of land for $80,000 in Rhode Island. No house, just one tiny city lot for 80 grand. AND they sold it in less than 2 hours!!! Insane.

Talk about insane:

I have a tiny 1000-square-foot house in SoCal. Bought it twelve years ago for just over $240,000 and figured I was getting screwed big time. It actually went down in value for a couple of years. Anyway, the bank just appraised it at $650,000.

Mind you, this is not some fancy-schmancy designer house, but an extremely ordinary 1950 wood-frame, single-story, one-bed, one-bath...dump. I can't imagine what makes it "worth" so much. I have to believe it's a bubble, some kind of weird speculative thing.

I really don't see how people are supposed to buy a house in this kind of real estate market. The AVERAGE price of SoCal house just topped $400,000. Insane! Insane!

Jan

My home is located in one of the top 20 fastest appreciateing market - even though we got whacked by a hurricane!

Can't give you any tax advice, although I think what you been given already and the recommendation to see a CPA are excellent ideas.

Lots of houses in rural areas and smaller towns go for relatively small sums. Not rundown stuff either, but often older homes in excellent condition.

I always thought that if you sold a home at a profit, and turned around and bought a more expensive home you would not have to pay the taxes. Maybe that is only on your primary residence though.

Scott

That used to be the rule many years ago. Now you can do it for business purposes (a house that you may be renting out, etc), and it cannot be your primary residence. You also had to adjust the basis of your new house down by the amount of profit you were not paying taxes on. This means that many years and houses down the road, if you ever want to sell the house for cash, you may end up oweing more in taxes than you make on the sale of the house. Some people just hold on to the house or donate it to charity at this point.

As someone has already stated, for your primary residence, you are not taxed on the profits up to $250,000 (it may be $500,000 for married couples, not sure) provided you have lived in the house as a primary residence for 2 of the last 5 years.

Land value and demand.

Yes, it's $500,000 for couples if you're filing jointly.

I'm going through a similar experience right now. A year ago my wife and I moved and sold our house. We made around $100k on the sale and used the profits for buying another house and didn't pay any taxes on it. We have now decided to move out of CA and bought a house in MO. We have a buyer for our house and will make another very nice profit off of the sale. However, we haven't lived here for two years yet so we're going to get taxed on the profits. After looking into the capital gains laws, I had to push back my closing date a week so that I had been in my house for a year. Anything over a year is considered a long-term gain and is taxed at a much lower rate. On short-term gains (less than a year) you get taxed at around 30%!