We are selling our home and my elderly father's home in order to build a house that will provie enough room for us all. Will we be taxed on the proceeds from my father's house? Will it be considered a gift? How do we use his proceeds in order to avoid any tax penalities for either party?
2007-06-13 12:45:18 · 6 answers · asked by LeProfesseur 1 in Business & Finance ➔ Taxes ➔ United States
The fact that your planned purchase is a home that you will live in with your father has no tax implications unless your father is on the deed. From the wording of your question I assume this is not the case.
If any tax is owed on the sale of your father's house, it would be paid by your father. He can exclude up to $250,000 ($500,000 if married) capital gains on his home if he has owned and lived in it for two years prior to the sale. If his gain is less than the exclusion amount, no report is filed with the IRS. If the gain is more than the exclusion, he has to include the sale on Schedule D and pay capital gains on the amount over the exclusion.
If he is gifting you the money from the house, then again, if any tax is owed, it would be owed by your father. He has a lifetime exclusion of $1 million for his estate and gift taxes. If the amount of his gift to you is more than $12,000, Form 709 must be filed so that the gift is subtracted from his lifetime exclusion. Unless he has total lifetime gifts of more than $1 million no gift tax will be owed even though he is required to file Form 709.
Your present home sale can also have an exclusion of $250,000 ($500,000 if married) capital gains. Same situation as your father as described above.
2007-06-13 13:04:57 · answer #1 · answered by ninasgramma 7 · 1⤊ 0⤋
Assuming that you and your father both lived in your respective homes as your principal residences for at least 2 of the 5 years immediately prior to the sale you'll be able to exclude part or all of the gain from capital gains tax. The exclusion amount is $250,000 for a taxpayer filing as Single and $500,000 for a couple filing Married Filing Jointly. Any profit exceeding those amounts will be taxable at the long term capital gains rate, normally 15% regardless of what you do with the proceeds.
If your father gives you his profits towards the cost of your new home there may be Gift Tax consequences for him. He can give up to $12,000 per recipient without having any tax liability. Any more than that and a Gift Tax return will be due. There might not be any tax due but without knowing his entire lifetime Gift Tax position it's impossible to say for sure.
You could avoid that if you put the home in joint ownership, possibly with right of survivorship. That way title would pass to you upon his death without any tax consequences as you'd get the stepped up basis of his share as of the date of his death. You should probably discuss that with an attorney as there can be some pitfalls if the deed isn't done right.
2007-06-13 20:14:29 · answer #2 · answered by Bostonian In MO 7 · 3⤊ 0⤋
The rule about deferring capital gains taxes on home sales by investing the money in another home has been gone for quite a few years. Now, for tax purposes, it doesn't matter what you do with the money, it doesn't change anything.
If your father lived in his home for two full years of the five immediately prior to the sale, and owned it for two of those same five years, then up to $250,000 of gain on the sale is not taxable - it's not just deferred, it isn't taxed at all. Don't have him sign over the house to you before the sale - sell it in his name.
The same rules apply to you for your house sale - but if you're filing a joint return, then the first $500,000 of gain isn't taxed.
Owner of a lonely CA has so many things wrong in his answer it's hard to even list them. The other answers you have so far are correct.
2007-06-13 21:34:48 · answer #3 · answered by Judy 7 · 0⤊ 0⤋
Has he lived in it as his primary residence 2 out of the last 5 years? If this is the case there would be a sale exemption up to a certain amount that would not be taxed.
2007-06-13 19:50:54 · answer #4 · answered by joanns25 2 · 0⤊ 0⤋
How old is your father and how long did he live in the sold house? If over 2 years then no taxes are due unless he is a realitor.
2007-06-14 22:42:12 · answer #5 · answered by K M 4 · 0⤊ 0⤋
you should really talk to a CPA/tax professional. They will be able to provide the most reliable information.
2007-06-13 19:52:45 · answer #6 · answered by ruca80 3 · 0⤊ 1⤋