Sev­eral fac­tors de­ter­mine tax im­pli­ca­tions on sell­ing in­her­ited prop­erty

Sun Sentinel Broward Edition - Homespot - Broward East - - FRONT PAGE - By Ilyce Glink and Samuel J. Tamkin

Tri­bune Con­tent Agency

Q: My hus­band in­her­ited his par­ents’ home about six years ago. We are in the process of sell­ing it this year for more than $500,000. Our cur­rent in­come is less than $40,000. Do we pay cap­i­tal gains on this prop­erty? If so, how much? How do we find a com­pe­tent CPA or tax at­tor­ney? The sale will be in New York and we live in Ge­or­gia. A:

If your hus­band in­her­ited the home six years ago, he in­her­ited the home at its value at that time. So the good news is you shouldn’t think about hav­ing to pay taxes on the en­tire amount of the sale price. You need to fig­ure out what the value was of the home at or around the time your hus­band in­her­ited the home.

As you re­search home val­ues, you might find that the home was worth around $400,000 at that time, so at most your profit would be around $100,000. We’re sure you will have ex­penses as­so­ci­ated with the sale of the home: bro­ker’s com­mis­sion, set­tle­ment fees and other ex­penses. You might have even have had ex­penses to improve the home while you owned it for ex­am­ple: re­pairs on the roof, new hot water heaters and other items.

Many real es­tate bro­kers charge be­tween 5 and 6 per­cent com­mis­sion on the sale of a home. At around $25,000, along with other clos­ing costs and some im­prove­ments to the home over the years, you might only have a “profit” of around $50,000 on the $500,000 sale. The first $450,000 wouldn’t have a tax and the other $50,000 would be taxed at long term cap­i­tal gains rates of up to 20 per­cent. In your tax sit­u­a­tion, your rate may be lower.

One com­pli­ca­tion you might have is if you rented the prop­erty over the last six years. Rental prop­er­ties may cause your taxes to be­come even more com­pli­cated. When you rent a prop­erty, you are en­ti­tled to off­set the in­come you get from rent with ex­penses such as real es­tate taxes, in­sur­ance, and main­te­nance cost.

You also get to de­pre­ci­ate the prop­erty. That de­pre­ci­a­tion may have given you some “tax losses” over some years and now that you are sell­ing the prop­erty, the IRS will want to re­cap­ture that de­pre­ci­a­tion at a rate of up to 25 per­cent. So if you took around $50,000 in de­pre­ci­a­tion over the last five years or so, you might owe a tax of up to $12,500 in ad­di­tion to any other taxes you might have to pay.

How­ever, if your prop­erty has been rented for that time, you could de­fer pay­ing any fed­eral taxes on the sale of the prop­erty if you choose to sell this prop­erty and buy another like-kind in­come-pro­duc­ing real es­tate prop­erty. You can un­der­take a 1031 ex­change un­der IRS code rules and de­fer pay­ing taxes on the sale of the home.

We’ve made quite a num­ber of as­sump­tions but wanted to give you an idea of what you are up against. You also may have to con­sider New York tax rates and your own Ge­or­gia tax that may be owed.

So as far as find­ing some­one to help you out, you might con­sider an En­rolled Agent. En­rolled Agents are fed­er­ally li­censed tax prac­ti­tion­ers who spe­cial­ize in tax­a­tion and can rep­re­sent tax­pay­ers be­fore the IRS. You can find an en­rolled agent near you by search­ing for one on the site for the Na­tional As­so­ci­a­tion of En­rolled Agent NAEA.org . You also can ask some of your friends and rel­a­tives for a re­fer­ral to a lo­cal ac­coun­tant a CPA that has ex­pe­ri­ence with the tax laws of dif­fer­ent states and does ex­ten­sive work in this area.

Again, depend­ing on what the value of the home was when he in­her­ited it, how you used it and how much “profit” is in­volved will dic­tate the type of per­son you need to help you out. If the value of the prop­erty was $600,000 and now it’s worth $500,000 and you didn’t rent the prop­erty, you may have no tax to pay to the IRS. But New York and Ge­or­gia may have other rules per­tain­ing to this in­her­i­tance that could af­fect you. Good luck.

Ilyce Glink is the cre­ator of an 18-part we­bi­nar+ebook se­ries called “The In­ten­tional In­vestor: How to be wildly suc­cess­ful in real es­tate,” as well as the au­thor of many books on real es­tate. She also hosts the “Real Es­tate Minute,” on her YouTube chan­nel. Samuel J. Tamkin is a Chicago-based real es­tate at­tor­ney.

Con­tact Ilyce and Sam through her web­site, ThinkGlink.com.

(c) 2016 Ilyce R. Glink and Samuel J. Tamkin. Dis­trib­uted by Tri­bune Con­tent Agency, LLC

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