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Started By
Message
Real estate transaction
Posted on 8/10/17 at 8:23 pm
Posted on 8/10/17 at 8:23 pm
My friend Bill has owned a house for 30 + years. Bill owns the house outright. Bill has not lived in this house for many years. Bill is retired and generates no income, except for Social Insecurity.
Several years ago, Bill decide to "sell" 1 % of his house to his daughter Lucille. Lucille and her young professional friends occupied the house for many years. One might say they were "renters" although there was no formal or legal paperwork.
So from my understanding after this transaction, Bill was 99 % owner and Lucille is 1 % owner.
Fast forward a bit. There was a recent falling out between Bill and Lucille. Bill ended up buying back Lucille's 1 % ownership. So now Bill is 100 % owner again.
Today, Bill is looking to sell this house, but thinks he will have to pay capital gains tax. I told him that should not be the case as his name has been listed as the owner for 30 + years. The 1 % sale should not matter.
Am I correct?
Several years ago, Bill decide to "sell" 1 % of his house to his daughter Lucille. Lucille and her young professional friends occupied the house for many years. One might say they were "renters" although there was no formal or legal paperwork.
So from my understanding after this transaction, Bill was 99 % owner and Lucille is 1 % owner.
Fast forward a bit. There was a recent falling out between Bill and Lucille. Bill ended up buying back Lucille's 1 % ownership. So now Bill is 100 % owner again.
Today, Bill is looking to sell this house, but thinks he will have to pay capital gains tax. I told him that should not be the case as his name has been listed as the owner for 30 + years. The 1 % sale should not matter.
Am I correct?
This post was edited on 8/10/17 at 8:30 pm
4
Posted on 8/10/17 at 8:24 pm to Will Cover
I thought it went by living in the house last 2 years - no capital gains.
This post was edited on 8/10/17 at 8:25 pm
Posted on 8/10/17 at 11:28 pm to Will Cover
where is Bill's primary domicile?
Posted on 8/10/17 at 11:33 pm to Will Cover
The way that I understand it is the capital gains exclusion only applies to the primary residence. Thus, unless he occupies the property in question, he would owe capital gains on the sale.
However, if he is retired and his only income is from Social "Insecurity" he would probably be in the 10% tax bracket and thus his capital gains tax rate would be 0%.
A lot of words to say, I think the sale would be subject to capital gains tax but the rate would be 0%.
However, if he is retired and his only income is from Social "Insecurity" he would probably be in the 10% tax bracket and thus his capital gains tax rate would be 0%.
A lot of words to say, I think the sale would be subject to capital gains tax but the rate would be 0%.
Posted on 8/11/17 at 6:12 am to KillTheGophers
quote:
where is Bill's primary domicile?
Bill's primary domicile is in East Baton Rouge Parish. The house that Bill now owns 100 % again, but doesn't live in, is also in East Baton Rouge Parish.
Posted on 8/11/17 at 6:15 am to 1hogfan
quote:
A lot of words to say, I think the sale would be subject to capital gains tax but the rate would be 0%.
Do you have a direct link that allowed you to come up with your opinion?
I want to show Bill.
Posted on 8/11/17 at 8:23 am to Will Cover
You will not pay capital gains on the house if it was your primary residence in 2 of the last 5 years prior to the sale. If that was not the case, you will pay capital gains.
Posted on 8/11/17 at 9:04 am to HickoryofOld
Utilities were kept in Bill's name the entire time. What else would distinguish primary from non-primary?
Bill does own another house with his wife, Jill.
Bill does own another house with his wife, Jill.
Posted on 8/11/17 at 9:12 am to Will Cover
quote:homestead exemption?
Utilities were kept in Bill's name the entire time. What else would distinguish primary from non-primary?
Posted on 8/11/17 at 9:19 am to Will Cover
I'm not the expert on that particular question, but as I understand it, IRS looks at voter registration, car registrations, bills, etc. to determine what's considered the primary. I'm unsure how much leniency they give, but I'd imagine not much.
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