I have a question regarding capital gains and if I will have to pay them.
In November 2015 my mother signed over her home to me (I believe it was with a quit claim deed with wording that said I was buying it for $10). The house is fully paid for. The reason we did this is because my father died in August 2015 and my mother was needing to be placed in a home due to her dementia. We were applying for VA Aid & Attendance for my mom, but in order to qualify she could not have the house in her name. My parents have owned and lived in the home since 1960. They originally paid about $25,000 for it.
The plan was for me to sell the house once it was put in my name and use the money to pay for my mother's care. Fortunately we just received an offer of $170,000 for the house, but my husband just mentioned we may have to pay capital gains. I have 4 days to accept this offer, and we are in desperate need of money from the house sale to continue to pay for my mom's care in the memory care home she is now in. My husband & I both receive social security only- we have no other income. But if I have to pay a huge amount with capital gains I won't have enough money to pay for care for my mom until her death!
Are there any options to avoid paying capital gains? It is a very remote possibility that my mother could live with my daughter for awhile, but eventually she would need placement again when the dementia worsens (ie. for safety issues). I could hold on to the house, but it would not be my primary residence, and if I kept it I would really need to rent it in order to have enough funds to pay for my mother's care.
I'm praying you can answer this question quickly, and provide as many scenarios as possible to help me make the best decision. We are located in Tucson, Arizona (so is the home).
Thank you for your time.
Going through what you have written and the consequences of those facts:
- "my mother signed over her home to me" - So, whereas if the house was inherited, it would have obtained a Cost Basis at the date of death and inheritance, now this transfer is considered a GIFT and the house retains its original Cost Basis that your mother would have used had she sold the house.
Also, Since the House is obviously worth more than $14,000 [or if she gave it to you and your spouse; or you and a sibling - then $28,000], was an IRS Form 709 Gift Tax Return Filed? It must be filed before the date your mother's Form 1040 is filed.
- It appears that you or your spouse never actually occupied the house as your own personal residence - if you had then you would have possibly been able to exclude up to $500,000 of capital gains tax.
Since you did not occupy the house as your own personal residence, it is considered an investment asset and is treated as any such would be, namely you must report it as if you had received a Form 1099-B [you may have received a Form 1099-S].
The further complication is the issue of whether or not you could claim this is a Long Term Capital Gain - Since your mother took possession in 1960, the Holding Period for the Gift goes back to then, so it is a Long Term Capital Gain.
Rough Estimate of Gain =
a) Selling Price $170,000
b) less Agent Commission @ 5% = ($8,500)
c) As investment property, the utilities and any operating expenses paid out or to be paid out over the three months = Assume $500
d) Title transaction fees or filing fees if seller owes them, and other costs assume $2,000
e) so net proceeds, as an example, are $159,000
f) Subtract Cost Basis -you stated $25,000 - but were there any "improvements' [not just maintenance]? Assume new bathroom or the like - might add $10,000 to $25,000 to basis
So Net Gain as an example would be somewhere between $124,000 to $109,000
g) Capital Gains tax - married couple, minimal other income - 15% Federal = $18,600
h) possible state capital gains - Arizona @ 4.54% = $5,625
i) the recognition of this much gain and reported income would make more of your social security exposed to Federal Income Tax - sounds as if at the moment, none is.
j) Each of your Medicare Part B premiums will stay constant - no impact
Scruffy_Curmudgeon., Retired Firefighter/Medic
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