From: Greensboro NC
Hi TaxMama!
My parents bought our house in 1965 for $50,000.
They put their home in my name in 1981, when its value was around $90,000.
We're selling it this year for $150,000.
My question: Do I pay tax on the difference (profit) between the original
purchase price of $50,000 and the 2005 sales price of $150,000?
Or the difference between the 1981 value of the home (at the time I "acquired" it
for $1 from the parents) and the 2005 sales price of $150,000.
THANKS!
Bob
Hi Bob,
Are there still houses going that cheaply in the US?!
Goodness, a 50 year old shack that hasn't been maintained in half a century
goes for over half a million dollars in California. Someone just told me that
tear-down-quality houses in Ventura are going for over $800,000 - just to
end up with a lot.
You're living in a paradise!
Are you living in the house with your parents?
If you are, then you pay tax only on the PROFITS above $250,000.
Since even the price is less than that, you're not going to be paying taxes
at all.
Isn't that wonderful?
However, if you're not...that's another story.
The big question becomes - who REALLY owns the house?
Did you parents just transfer title to you for protective purposes, because
they are old?
Or was it to divest their assets so they can qualify for Medicaid?
In the first instance, you can have a competent attorney provide paperwork
that your parents were the beneficial owners of the property - in which case....
Paying an attorney is cheaper than paying the tax. And you will owe nothing
- because they are the real owners and they are entitled to the personal residence
exclusion.
If they transferred title so they could get government benefits, without
turning their assets over to the government...then, you own it.
In that case, the basis (tax cost) is the basis of the house in the hands
of your parents.
i.e. their $50,000 purchase price, cost of improvements (driveway, pool,
remodels and such - permanent additions/improvements) to the house/property.
It will include any such costs you incurred. Also, any legal fees to transfer
title, and the sales commissions and costs you incur.
Since you've owned it for more than 12 months, you'll get favored, capital
gains rates.
Those are all the options I can dream up.
Do have a tax professional review the situation so you don't get into any
trouble, OK?
Best Wishes,
Eva Rosenberg, MBA, EA
