Will my parents have to pay capital gains?

Question

I'm buying a home from my parents. They bought it in Nov. '06 for 285k. I'm buying it from them at a price of 307 w/ a total of 18,420 in seller concessions. They will net around 1200 dollars from the sell. Approximately what would the capitol gains be and is it based of the net profit or the initial gain? Any help would be greatly appreciated. Thanks in advance.

Answer 1

Based on the facts that you have provided it would appear that they will pay capital gains tax on the $1,200. Careful consideration should be give to how your arrived at the net figure. Assuming that you are correct their Federal Capital Gains would be $180 or less depending on their tax situation. Now you will have the issue of State income taxes and several states treat what the Feds call Capital Gains as Ordinary Income. If that is the case in your state the tax will depend on their AGI.

Answer 2

Yes, they'd most likely have to pay capital gains tax. The rate would depend on their marginal tax rate, but shouldn't be much - on $1200, the max would be $420 and they probably aren't in the 35% bracket, so it would probably be lower than that. The tax is based on the net gain.

Not sure just what you mean by seller concessions.

Answer 3

Some of the gain may be taxable. They did not live there for more than 2 years, but the reason why they sold before two years may be one of the execptions that the IRS allows to not include the gain into income. They need to contact a CPA and fully disclose the circumstances for the sale for an accurate conclusion can be made. I.E. change in place of employment, health reasons, unforeseen circumstances (Code Sec 121(c)(2).

Answer 4

When your parents file their taxes after the sale, they will be asked about any upgrades or improvements they did to the house, if any, closing costs at the purchase of the house, and this will also lower their profit.

Due to the fact that they did not live in and own the home for 2 years, their profit will be taxable to them.

Answer 5

In the US (?) your parents are entitled to a $ deduction if the home was their residence and they can life there for at least a year....

there will likely be no or very small capital gains taxes. You should both talk with a financial adviser to determine the best way of transferring the title as there are some other advantages with a inter-family transfer that may apply depending upon where you live.

Big bucks involved here in long term planning.. don't scr*w around with our advice.. go see a local pro and pay for the info (it may even be deductible).

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