Category Archives: Capital Gains

Selling Your House Tax Reporting

selling your house, selling your home,Selling your house may be bittersweet with all your memories being handed off to a stranger. Maybe selling your house comes with the jubilation of not having to spend your weekends fixing something. Whatever the case, houses around the Boston area are expensive and you may have some tax reporting to do.

If you are selling your house, your personal residence, you might qualify to exclude $250k of profits ($500k if you are married). If your house was your personal residence for two out of the last five years, congratulations! You qualify for the exclusion.

Beware When Selling Your House

Here are some things you should be aware of:

Years ago you had a small business that you were running out of your house. You claimed a home office deduction for a couple of years. You now need to recapture that and pay tax on what you depreciated. If the cumulative depreciation totaled $5,000, you have to pay tax on the $5,000 recapture.

This is also the case, if you moved out of your house two years prior to the sale and rented it out. You still qualify for the $250,000 (filing single) or $500,000 (filling married) exclusion, except on the depreciation on the house. For example, You bought your house ten years ago for $300,000, you moved out two years ago. You also rented it out until you sold it this year for $400,000. The accumulated depreciation during that time was $20,000. You pay tax on $20,000. I know your realtor told you that you qualify for the exclusion. You get to exclude the $100,000 gain, not the $20,000 accumulated depreciation.

But, you say you did not make $100,000; you only got $50, after you paid off your mortgage. Your gain is not a function of your mortgage balance. Surprise.

Other Tax Home Selling Tax Examples

Let’s say none of this stuff applies to you selling your house. You have a straightforward sale of a personal residence. You get to exclude the entire gain and 2 years after you file your tax return, you get a nice letter from the IRS claiming you owe them $100k in taxes. That is because when you sold the house, somewhere in that giant package of papers that you received at closing was a Form 1099-S that reported to the IRS that you received $400k for the sale of a house and you did not report it on your Schedule D. Well, how is the IRS supposed to know that you are excluding the gain. They also assume the gain was the entire $400k so they took the liberty of adjusting your tax return as such. (If this happened to you call me, Alex Franch, BS EA  at our WorthTax office, 781.849.7200.)  Not the hardest fix, but it could have been avoided had the sale been properly reported on the Schedule D when you filed your tax return in the first place.

Finally, you got the house from your great uncle’s other brother twice removed. He originally bought the house in 1954 for $3 and a bushel of corn. The house has been in a trust for the past 30 years. All the people who were alive when this was done have passed away.  To that I say, good luck!

If you have a home sale scenario you want help sorting out. Give Alex Franch, BS EA  at  781.849.7200.


Tax Break for Sale of Inherited Property

2015_04_22 Tax Break for Sale of Inherited PropertyPeople who have inherited property are often concerned about the taxes they will owe on any gain from that property’s sale. After all, the property may have been purchased years ago at a low cost by a deceased relative but may now have vastly appreciated in value. The usual question is: “Won’t the taxes at sale be horrendous?”

Clients are usually pleasantly surprised by the answer. Special rules apply to figuring the tax on the sale of any inherited property. Instead of starting with the decedent’s original purchase price to determine gain or loss, the law allows taxpayers to use the value at the date of the decedent’s death as a starting point. Sometimes an alternate date is chosen. This often means that the selling price and the inherited basis of the property are practically identical. There is little, if any, gain to report. In fact, the computation frequently results in a loss, when it comes to real estate that is subject to large selling expenses such as realtor commissions, etc.

Certified Appraisal of your Inherited Property

This also highlights the importance of having a certified appraisal of the home to establish the home’s tax basis. If an estate tax return or probate is required, a certified appraisal will be completed as part of those processes. If not, one must be obtained to establish the basis. It is generally not acceptable just to refer to a real estate agent’s estimation of value or comparable sale prices if the IRS questions the date of death value. The few hundred dollars it may cost for a certified appraisal will be worth it if the IRS asks for proof of the basis.

Deductible or Not?

Another issue is whether a loss on an inherited home is deductible. Normally, losses on the sale of personal use property such as one’s home are not deductible. However, unless the beneficiary is living in the home, the home becomes investment property in the hands of the beneficiary. A loss is deductible but subject to a $3,000 ($1,500 if married and filing separately) per year limitation for all capital losses with any unused losses carried forward to a future year.

In some cases, courts have allowed deductions for losses on an inherited home if the beneficiary also lives in the home. In order to deduct such a loss, a beneficiary must try to sell or rent the property immediately following the decedent’s death. In one case, where a beneficiary was also living in the house with the decedent at the time of death, loss on a sale was still deductible, when the heir moved out of the home within a “reasonable time” and immediately attempted to sell or rent it.

What Changes are Ahead for Inherited Property?

This tax treatment could change in the future, however. The President’s Fiscal Year 2016 Budget Proposal includes a proposal that would eliminate any step up in basis at the time of death and would require payment of capital gains tax on the increase in the value of the home at the time it is inherited.

Looking for tax information about inherited Property?

Perhaps you are settling an estate and have a home you inherited? We will provide accurate tax information for you. WorthTax are tax experts. Maybe you are in a bind and you did not make the deadline to file your taxes. We can help, even with past years. Contact this office at call Alex Franch, BS EA at 781.849.7200 for assistance in planning your real-estate transactions. Worthtax has locations in Quincy, Weymouth and Dedham.

Sources and Resources to Sell Inherited Property?