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Beating capital gains on sale of inherited property
Posted on 5/7/12 at 6:33 pm
Posted on 5/7/12 at 6:33 pm
Alright, so I'm about to dump some money (not a ton) into a place my dad left me down on the coast.
My sister and I co-own it and are trying to hold onto for approximately two yrs until the market recovers some.It's real close to being ocean front so we hope to do really well.
Does anyone know what the options are on dodging or postponing dealing with the 25%? I was thinking about building another house and moving into it for a few years and calling it investment property.If it went well,maybe rolling it into another one.Is this a reasonable option or is there a better way
TIA
My sister and I co-own it and are trying to hold onto for approximately two yrs until the market recovers some.It's real close to being ocean front so we hope to do really well.
Does anyone know what the options are on dodging or postponing dealing with the 25%? I was thinking about building another house and moving into it for a few years and calling it investment property.If it went well,maybe rolling it into another one.Is this a reasonable option or is there a better way
TIA
1
Posted on 5/7/12 at 8:55 pm to Chef Leppard
First, your basis in the property is its fair market value at your father's date of death, and you are considered to have owned the property as long as your father did. So there is zero depreciation recapture to worry about when you first inherit real property. The property only begins depreciating when you place it in service as a rental property. Any money you invest to improve the propertry simply increases your basis in the property.
Posted on 5/8/12 at 8:21 am to Poodlebrain
Unless your father died in 2010, when "step up in basis" didn't necessarily apply (trust me, because Congress couldn't make up their mind, it gets real complicated) due to the Bush tax cuts eliminating the Estate Tax that year.
Posted on 5/8/12 at 8:46 am to Dreamweaver
Correct me if I'm wrong, but you could still file the return, therefore electing the basis step-up in 2010 - up to $1.3 million in step-up.
Posted on 5/8/12 at 10:01 am to krehn11
First it is currently 15% tax on the gain not 25%.
Second, what does building/buying another house to use as an investment property have to do with the inherited property? are you talking about using the funds for a 1231 exchange?
Third, if you are going to sell the place in 2 years anyway, I would advise on selling in 2012. The capital gain rate is the lowest it is going to be right now regardless of who gets elected in November. Rates are only going to go up.
Second, what does building/buying another house to use as an investment property have to do with the inherited property? are you talking about using the funds for a 1231 exchange?
Third, if you are going to sell the place in 2 years anyway, I would advise on selling in 2012. The capital gain rate is the lowest it is going to be right now regardless of who gets elected in November. Rates are only going to go up.
Posted on 5/8/12 at 12:27 pm to krehn11
Thanks krehn11 and you are absolutely right. Just wanted to make the OP aware that if his dad happened to die in 2010 the step up may not be automatic and he may have to do just what you suggested. It was also meant as a backhanded comment at how f'ed up our current political situation is vis a vis the constant end of the year tax extensions.
Posted on 5/8/12 at 12:44 pm to Dreamweaver
My dad passed in June 2009.
And to answer the other question,I was told that if you roll the money into another investment ,you can avert or postpone paying the gains on it.therefore my question is whether or not building a spec house to sell in the short term qualifies as one type of investment.
And to answer the other question,I was told that if you roll the money into another investment ,you can avert or postpone paying the gains on it.therefore my question is whether or not building a spec house to sell in the short term qualifies as one type of investment.
Posted on 5/8/12 at 1:59 pm to Chef Leppard
If you use to the proceeds to invest in a like-kind property, which in this case is real estate for real estate, their are requirements that must be met to postpone the tax:
-once you sell the inherited property, the money can not go to you.
-it has to go to an apporved safe harbor, think of a escrow or trust ( which someone will charge you)
- then you have 45 days to indentify the new property
- once id'd you have 180 days from the due date of the return to complete the transacations.
So, it is possible to do, but make sure you speak with a CPA or lawyer before you begin the procedure. The main requirement is that the funds never touch your hands.
Also, I do not know what the fees are for the agent how is going to hold onto the property for you. After you invest the money into the property you need to determine your basis to see what amount of gain you are actually looking at. It maybe cheaper to pay the tax at 15% rather then go thru the procedure above.
-once you sell the inherited property, the money can not go to you.
-it has to go to an apporved safe harbor, think of a escrow or trust ( which someone will charge you)
- then you have 45 days to indentify the new property
- once id'd you have 180 days from the due date of the return to complete the transacations.
So, it is possible to do, but make sure you speak with a CPA or lawyer before you begin the procedure. The main requirement is that the funds never touch your hands.
Also, I do not know what the fees are for the agent how is going to hold onto the property for you. After you invest the money into the property you need to determine your basis to see what amount of gain you are actually looking at. It maybe cheaper to pay the tax at 15% rather then go thru the procedure above.
Posted on 5/8/12 at 11:46 pm to LSUMon
Awesome answer man,thanks.
Posted on 5/9/12 at 12:25 am to Chef Leppard
Look up Bill Hyde. He is a highly respected 1031 exchange expert in BR.
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