Question

Long Term Capital gains tax on house

Forum|Forum|2 years ago
March 31, 2024
1 reply
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My grandma has lived in the same house for 60 years and plans on selling it. She bought it for $16,000 and it is now worth let's say $716,000 for ease of numbers. She only has $1,300 of income each month. Since her income is less than $47,025, does she qualify for the 0% long term capital gains tax rate when she sells it?

Or does the profit of the house ($700,000) count towards her income for the year and now she will have to pay 0% of long term capital gains for the first $47,025 of income, 15% for her income $47,026 to $518,900, and 20% for her income $518,900+? Also, she can qualify for the $250,000 reduction since she has lived there for 2+ years and it's been her primary residence, right? If someone can get me a rough estimate on the taxes she will have to pay that would be much appreciated.

Capital Gains

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Mike9241

since she owned and lived in it for 2 out of the 5 years before sale, $250,000 of the gain is totally excluded from income (home sale exclusion). some other items that will reduce the taxable gain:

that $250K increases to $500k if she was married and her husband died within two years of the date of sale and occupied the house 2 of 5 years before sale.

1) sales expenses

2) capital improvements. in 60 years certainly some capital improvements were made

3) if she inherited part or total ownership of the house there would be a step up in basis for this

so without knowing anything about the items above the taxable gain would be less than $450,000

about the first $45K is taxed at zero

the next $405K is taxed at 15% ~ $60K in taxes

in addition, since the gain on the home sale is treated as investment income and exceeds $200K

adjusted gross income of the $250K gain and $13K of other income (i assumed it was social security of which 85% would be taxable) is subject to the net investment income tax of 3.8% about another $10K in taxes.

so ~$70K in federal taxes but it certainly should be less considering the items cited above

state taxes were not considered.

Hal_Al

If she owned the home jointly with her spouse up until his death, half the cost basis "steps up" to the fair market value on the date of death.

It may be best explained by example. He died 15 years ago when the house was worth $400,000. Her new cost basis is now $208,000 (half of $16,000 plus half of $400,000).

If they lived in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), the entire cost basis steps up. Her new basis would be $400,000, in the example.

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msveinson21Author

Thanks! This helps a lot! She does live in California and her spouse died in July 1987. I have her house estimated at $171,000 at that time which I will put at her new cost basis.