If my friend wants to sell her house now for about $500000, she will have to pay Capital Gains taxes on $250000 of the profit the way the tax laws are written now. Is there any way that she can avoid paying those Capital Gains Taxes to the State of California if she sells her house for more than $250000? From what I've heard from other sources, the only way for her to avoid paying the Capital Gains tax for any profits over $250000 is for her to get married, at which time her Capital Gains excemption goes up to $500000.
2007-04-15 09:12:57 · 3 answers · asked by todd s 1 in Business & Finance ➔ Taxes ➔ United States
The amount of capital gains tax she will have to pay depends on her basis in the property. It is true that up to $250k of gain is excluded if the house has been her principal residence for 2 out of the past 5 years, but her gain will not be the selling price, it will be the selling price minus her basis in the property.
If she received the house as an inheritance or bequest her basis will the fair market value of the property at the time of the death of whomever bequested the property to her. If she bought the house she will have a cost basis, i.e. the amount she paid for the house. Also, any capital expenditures on the property will increase her basis. Capital expenditure are big projects - like a new kitchen, new floors, anything that increases the value of the house. However, ordinary repairs, such as painting or a new roof will not increase basis.
Her gain will only be the amount for which she sells the property minus her basis and she can exclude up to $250k of that gain (meaning she will not even have to report it on her taxes).
2007-04-15 09:26:52 · answer #1 · answered by Anonymous · 1⤊ 0⤋
Your analysis of the situation is not correct. The gain has nothing to do with what the seller owes on the house. Her basis (purchase price plus improvements plus any eligible buying or selling expenses) gets subtracted from the selling price to calculate her gain.
2007-04-15 21:39:51 · answer #2 · answered by Judy 7 · 1⤊ 0⤋
From what I have heard , the only way out is to buy another house for at least what you sold the last one for..I guess it could be a house and land, say , a $200,000 with the rest put into land, like a ranch or farm. Doesnt have to be a working ranch or farm, it could be all wooded or recently timber harvested land. That will also make a very nice investment for her future
2007-04-15 16:23:27 · answer #3 · answered by MIKE L 3 · 0⤊ 2⤋