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blake_nieto
New Member

Inherited my home in 2012 when my mom died, I lived w/ her until she died. I lived there until Jul '16. Selling to friend for 95k, appraised 167k. Tax roll 110k. Taxes?

What are the taxes implication on myself and/or the buyers(my friend)?  I took a HELOC in Mar '16 to buy a small piece of land and a small house in total 65k, I have been paying on that monthly since then.  I did rent the house I want to sell out for 650 to one family, and 800 to another during which went straight to the loan.  The house has been vacant since June 2020.
4 Replies
Mike9241
Level 15

Inherited my home in 2012 when my mom died, I lived w/ her until she died. I lived there until Jul '16. Selling to friend for 95k, appraised 167k. Tax roll 110k. Taxes?

at times it's not clear which one you are talking about. you start out by saying you inherited your home in 2012. then in 2016, you bought a home.  you rented one which you're going to selling? which one? for the last 5 years which one have you lived in? 

VolvoGirl
Level 15

Inherited my home in 2012 when my mom died, I lived w/ her until she died. I lived there until Jul '16. Selling to friend for 95k, appraised 167k. Tax roll 110k. Taxes?

Have you been reporting the rental income each year on Schedule E and depreciating the house?  Even though the rent paid the loan you had to report it. 

 

And If your rent income is less or not much more than the mortgage payment you don't necessarily have a loss.  You just have a negative cash flow.  In fact you may end up showing a net profit on your tax return.

tagteam
Level 15

Inherited my home in 2012 when my mom died, I lived w/ her until she died. I lived there until Jul '16. Selling to friend for 95k, appraised 167k. Tax roll 110k. Taxes?

You need to provide more details, @blake_nieto

 

In addition to the questions posed in the previous answers, why are you selling to a friend for nearly 50% less than market value? Further, what was the fair market value on the date of your mom's death?

Opus 17
Level 15

Inherited my home in 2012 when my mom died, I lived w/ her until she died. I lived there until Jul '16. Selling to friend for 95k, appraised 167k. Tax roll 110k. Taxes?

You have not lived in a home for at least two years of the five years prior to the sale, so you must report the sale and pay any capital gains tax.  Your capital gains is the difference between your selling price and your adjusted cost basis. The amount you borrowed or the amount of outstanding loan has nothing to do with your capital gains.  

Your starting cost basis is the fair market value of the home on the day your mother died. You must then reduce your cost basis by any depreciation that you took or could have taken while the home was a rental.  

For example, we might assume that the home was worth $100,000 in 2016 and is worth $167,000 in 2021. You took or should have taken about $5000 of depreciation if you rented a home for two years, so your adjusted cost basis would be $95,000.  If you sell the home for more than the adjusted cost basis, the difference is a taxable capital gain that you must report.  If you are selling for less then the adjusted cost basis, you have a capital loss. A capital loss cannot be deducted on personal property, but it can be deducted from business property. It’s not clear if this is personal or business property, especially if it was only occasionally rented out. If the $95,000 sale price represents a loss (after considering the value on the date of your mothers death and any adjustments) you would need to consult a professional tax advisor to determine if that loss was deductible.

 

Then separately, you are also making a gift of equity to the buyer. If the home is worth $167,000 and you are selling it for $95,000, then you are giving the buyer equity worth $72,000. This must be reported as a gift on a gift tax return form 709. Gift tax is not actually required to be paid unless your lifetime gifts are more than $11 million, but you must report gifts over $15,000 so that the IRS can track them against your lifetime limit.

 

The value that the house is listed on the tax assessment rolls has nothing to do with anything else in this situation. Tax assessments are often not at fair market value. Fair market value is determined by what a willing buyer will pay a willing seller in a sale that is not forced. Fair market value can be estimated by a property appraisal.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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