Taxable income from sale of home?

Question

My grandmother recently passed and she deeded her home to the grandchildren. We took possesion of the home, this wasn't inheritance by the way, and we have sold it. From what I understand I will have to claim this money as Income for 2007. I usually just use the 1040ez form because I don't own property and I have no deductions or anything that would make me use the long form. My first question is can I still use the EZ form with this type of income? Secondly, will I get something in the mail to document these earning? I don't think the attorney is making us fill out w9's, so I'm not sure how to report this. Will this be considered as capital gains? I've heard they tax capital gains more significantly than earnings from employment.

Any advice would be great. Thanks.

Answer 1

First, the following is from the IRS website:

You may qualify to use Form 1040EZ, the simplest form, if:

• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You are under age 65
• You are not claiming any dependents
• Your interest income is $1,500 or less

You may be able to use Form 1040A if:

• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim deductions for IRA contributions or student loan interest

If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:

• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property
• You are claiming the educator expense or higher education tuition and fees

Choosing the correct tax form could mean money in your pocket. Check your tax instructions carefully. Publication 17, Your Federal Income Tax (For Individuals), is a helpful guide to preparing your federal tax forms. It is available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Looks like Form 1040 for you!

Secondly, I hope the property was valued as of her date of death (I am sorry for your loss...), because it gets a "step up" in basis - that is VERY important - if you don't know what I mean, FIND OUT!!!!. (However, I hope there is not a problem with that as it appears she deeded it prior to her death....uh oh...) Since her house was sold fairly quickly there should be very little gain on the sale. You will receive a form in the mail, and the gain will be reportable on Schedule D. Short-term capital gains tax rates are very small these days, thanks to GW.

Perhaps you might consult a professional to prepare your taxes this time around?! I think you may need a competent CPA to look at the specifics of this. A lot of money could be at stake.

Good luck!

tlccpas.com

Answer 2

Your understanding is correct that the gain on the sale of the home is taxable income. Since it wasn't an inheritance, your basis in the property is whatever basis your grandmother had.

No, you can't use 1040EZ this year, you'll have to use form 1040 and schedule D for the capital gains on the sale of the house. And actually capital gains get taxed LESS than ordinary income, not more.

Answer 3

1. No you cannot use Form 1040EZ, you will need Form 1040.

2. You may receive a 1099S showing the sale, or you may not. You will still need to report the sale on Schedule D.

3. It will be capital gains. If you owned the house for one year or less before selling it, the capital gains will be taxed as ordinary income, the same as your wages. If you owned the house for more than one year, the capital gains tax is less than your tax bracket. It will be between 5% and 15%.

The gain is the difference between your grandmother's investment in the property (her purchase price plus improvements) and the sales price. Sales commissions, attorney fees to prepare the papers, and such, can be added to the cost of the property and will reduce your gain.

Answer 4

Yes you will pay taxes, I believe you will pay capital gain tax because you did not own the home for 2 years (there may be a way to get around that due to the fact that you inherited the house but you said it was not inheritance so I am not certain) Than you will pay income tax. I do not believe it would be to your advantage to use 1040 EZ you may want to consider itemizing your expenses. I am sure you guys had some involving the sale of the transaction.

Answer 5

f the house was gifted to you, the basis of the property is your grandparents original cost basis plus the costs of any improvements and sales commissions.

Which means you would deduct your grandparents original cost of the house and the improvements if any and the sales commissions and cost to get to the amount that you would report as income.

If the house passed to you as an inheritance or was gifted within 2 years of the last to die and includible in the gross estate of your grandparent, then the cost basis is the date of death fair market value, plus costs of any improvements made to it since the date of death, plus selling commissions.

You probably have no line on the 1040 ez to report the sale. So you will need to file the regular 1040. If you do not live in the house you might have to report it as capitol gains. I would probably have the taxes computed by HH Block or someone like that to get the correct form filed with your 1040.

Answer 6

"We took possesion of the home, this wasn't inheritance by the way, and we have sold it."

Yes? You put a sign out in front of the house saying, "For sale by embezzler?" I keep hoping to see a sign someday that says "For sale by REALLY annoyed neighbor."

The *profit* on the sale of that house is taxable. If you paid Gram $100,000 for the house, and you sold it for $101,000, then you have $1,000 gross profit. Subtract the costs of selling (including the expense in fixing up the house for sale), and the *net* profit is taxable income.

Answer 7

gunk