Any way to avoid the tax man.

[GSPHUNTER]

When my brother died in 2016 he left his house to the remaining three siblings, One brother wanted nothing to do with it, so my sister and I bought him out. Her daughter and her husband, who had moved in with my brother and lived with him and took care of him for two years, have remained in house rent free since he died. We are now going to sell the house. We are looking at a net profit of $75k each. I'm about 2% sure we can deduct the money we spent buying the one brother out. My question is, aside from reinvesting money into another piece of property, is there any way to distribute funds over a period of time to lessen yearly tax burden. I think I know the answer, but I figured it wouldn't hurt to ask. The house is in Wis. I am in Cal. UGH.

 

[DB29]

Did the property get transferred into your names in 2016, or thereafter, or is it still in your brothers name?

 

[Bachto]

You need to talk to a CPA but there is probably one on here.

 

[GSPHUNTER]

Property is in my sisters and my name. He died in Dec. of 16, but house did not get recorded in our names until 17, not that that would mater. We do have an accountant, I just thought I would put it out there to see if anyone had dealt with a similar situation.

 

[tdhanses]

No clue but isn’t there an inheritance exclusion to a certain amount of value for federal tax, state tax may not be the same though.

 

[txjustin]

When my brother died in 2016 he left his house to the remaining three siblings, One brother wanted nothing to do with it, so my sister and I bought him out. Her daughter and her husband, who had moved in with my brother and lived with him and took care of him for two years, have remained in house rent free since he died. We are now going to sell the house. We are looking at a net profit of $75k each. I'm about 2% sure we can deduct the money we spent buying the one brother out. My question is, aside from reinvesting money into another piece of property, is there any way to distribute funds over a period of time to lessen yearly tax burden. I think I know the answer, but I figured it wouldn't hurt to ask. The house is in Wis. I am in Cal. UGH.

You can owner finance it to annualize the burden over X amount t of years.

Speaking of that, I’d be interested in buying it on such terms. Where is it?


Sent from my iPhone using Tapatalk

 

[Moab34]

Seems like section 121 exemption would apply for your sister, not sure if that can apply to your gains as well.

 

[stanginthe11s]

just roll the money over into an investment. you only pay tax on realized gains. look into the inheritance rules also. who is the executor? money from the sale can go to the executor as payment for services, but not much. there are many ways to keep that money, but you need a good accountant

 

[GSPHUNTER]

Seems like section 121 exemption would apply for your sister, not sure if that can apply to your gains as well.

why would it apply to her and not me?? We are 50/50 owners of the property. We both paid equal amounts to buy out our brother. I understand beings we inherited the property it would be outside a tax burden because its value was below the amount allowed before it would be taxed. But would we have to pay on the increased value of the property? Say the property was worth $100k when we inherited it, that would be tax free. Now the property is worth $250k. Profit off sale $150k, we would each get $75. Is that taxable???? My guess is, yes.

 

[Crowmangler]

Not sure of all the details but as @txjustin mentioned above, owner financing can be a great way to structure a property transfer / sale.
I did it with a commercial property several years ago & the owner was worried about his tax burden so he figured out which bracket he wanted to be in & structured the payments to fit his target.
The downside is you're still tied to the property & any drama or messy BS that might be associated with it down the road. Sometimes it's better to just cash your check & move on.

 

[GSPHUNTER]

Not sure of all the details but as @txjustin mentioned above, owner financing can be a great way to structure a property transfer / sale.
I did it with a commercial property several years ago & the owner was worried about his tax burden so he figured out which bracket he wanted to be in & structured the payments to fit his target.
The downside is you're still tied to the property & any drama or messy BS that might be associated with it down the road. Sometimes it's better to just cash your check & move on.

I went that rout on a piece of property I sold years back. For the first year there were issue receiving payments in a timely manner. It was all worked out after some back and forth. I am not interest in doing it again. I'll just take the money and give your govt. a large portion of it.

 

[Sam Colt]

why would it apply to her and not me?? We are 50/50 owners of the property. We both paid equal amounts to buy out our brother. I understand beings we inherited the property it would be outside a tax burden because its value was below the amount allowed before it would be taxed. But would we have to pay on the increased value of the property? Say the property was worth $100k when we inherited it, that would be tax free. Now the property is worth $250k. Profit off sale $150k, we would each get $75. Is that taxable???? My guess is, yes.

Section 121: Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

 

[Nickofthewoods]

Try this.

 

[TCUHunter34]

I don’t know if it applies in this situation, but looking into a 1031 could help you avoid the taxes. Purchase another property, rent/Airbnb it, refinance it to pull your money out. If done properly, you’ll get all your money back and it will be tax free.

 

[ohoopee]

Keep in mind the current capital gains rates are more favorable than the prior
28% plus state tax rate. It appears graduated rates go to 10, 15, 25, 28, 33, 35, and 39.6 in 2026.

 

[timberland]

SHe should not have to pay capital gains as it was her primary residence for 3 out of the last 5 years. as for you, there are a couple ways to calculate profit vs value, which is used in calculating capital gains tax. i.e. assessed value, investments to improve property, etc.

 

[GSPHUNTER]

SHe should not have to pay capital gains as it was her primary residence for 3 out of the last 5 years. as for you, there are a couple ways to calculate profit vs value, which is used in calculating capital gains tax. i.e. assessed value, investments to improve property, etc.

It was not my sister who lived in the house, it was her daughter and her husband.

 

[Sam Colt]

It was not my sister who lived in the house, it was her daughter and her husband.

Oops. Did y’all collect rent? If so, 1031 sounds good.

 

[MattB]

I agree with those who say pay your taxes and move on.

As explained there are ways to defer the gains and associated taxes, but often the juice is not worth the squeeze.

 

[Wapiti7]

DO NOT PAY YOUR TAXES AND MOVE ON! I'm going to give some general advice here in the hopes of not jeopardizing my license...but YOU NEED TO TALK TO A CPA. Code section 1014 of the Internal Revenue Code (google it) generally provides for a basis adjustment in the property inherited from the decedent. In English, that means the house has a tax basis in your hands equal to fair market value at your bro's date of death. So, if you and your siblings sold it the day after he died, you would generally have no taxable gain to pay tax on. If there has been appreciation since your bro's date of death until now, then that post death appreciation would be taxable. So, you probably need to have an appraisal done at bro's date of death (or a market value analysis or something to hang your hat on). Again, talk to a CPA...big enough deal, get this one right.