How do we defer tax on $50,000?

Question

My husband and I will receive this money from the sale of a house he inhereted. He is 66 I am 42 yrs. old. What do you recommend.

Answer 1

Depends on the circumstances. If you lived in it for 2 out of the last 5 years and owned it for 2 out of the last 5 years, you can exempt up to $500,000 in gains if married ($250,000 if single). If you didn't own it and live in it for that time period, you would only pay capital gains on the difference between what you sold it for and what the cost basis of the house was. The cost basis was what it was worth on the day that the person who owned it before your husband died.

Answer 2

If the home was your primary residence for at least two of the five years right before the sale, and he owned it for two of those same five years, then the gain would be exempt from tax.

Has the house increased in value $50K since the death of the person he inherited it from, or is $50K what you expect to get for it? On inherited property, your basis becomes the value when the person died who left it to you, and you only pay tax on appreciation over that amount.

If you didn't live in the house, and the $50K is appreciation, then pay the tax and be glad for the amount you have left over. It would be long term capital gains, taxed at 5% or 15% depending on your other income.

Answer 3

"Defer" means that you pay later. If this is from the sale of a house, your best option would have been to make it your primary residence and live there for long enough so that the sale would be tax free.