Any way to avoid the tax man.

[sao18]

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.

When your brother passed and you inherited the property you both should have been on the deed. You could likely sell it and report it the correct way and the IRS would be none the wiser.

You're correct on valuation, you get the a step up in basis(cost) at inheritance. In your example, your basis in the property would be the fair market value at death/inheritance AKA 100K. Any money you put into the property would add to your basis. Say you did 50K of renovations that would increase your basis to 150(100+50). If no renovations, then basis 100K and gain would be 150k split two ways.

Few ways to avoid the tax hit:

1) 1031 exchange for a similar property. I'd recommend using an CPA to achieve this. Simply taking cash from the sale and reinvesting it will not avoid the tax.
2) rent to own.
3) installment or deferred sale.

 

[sao18]

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.

Not his primary home, can't exclude the gain like you can for primary home.

 

[Gutshot007]

I'd call Randy Newberg

 

[MattB]

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.

Did I miss your advice on a strategy to spread the cap gains taxes out over multiple years (which was the question asked), because it seems like the only advice that came from your post which started with “DO NOT PAY YOUR TAXES AND MOVE ON!” was to pay your taxes and move on?

The OP said he has an accountant and your advice should be elementary to anyone in that field.

 

[Wapiti7]

What I am saying is that if you do it right (take a basis adjustment to fair market value at date of death and then add to that basis by the amounts paid to buy out siblings, add any improvements and carrying cost, add closing costs at dispo), then there is likely little, if any, capital gain. If that is the case, all of these other suggestions (1031, installment sale, etc.) are silly. My comment regarding "DO NOT..." was from the post above that basically said you're screwed, pay the tax and drive on.

I know plenty of accountants that bone this kind of stuff up all the time.

 

[yycyak]

Just throwing this out there, but if the deemed sale/transfer happened ~2016 (+ associated basis adjustment), and the sale is happening now... There's likely a capital gain regardless of the basis bump, seeing as property values/inflation have gone insane since 2020. But I'm just guessing.

I'm a Canuck tax guy though, so my American tax is mostly limited to the cross-border bubble.

What I am saying is that if you do it right (take a basis adjustment to fair market value at date of death and then add to that basis by the amounts paid to buy out siblings, add any improvements and carrying cost, add closing costs at dispo), then there is likely little, if any, capital gain. If that is the case, all of these other suggestions (1031, installment sale, etc.) are silly. My comment regarding "DO NOT..." was from the post above that basically said you're screwed, pay the tax and drive on.

I know plenty of accountants that bone this kind of stuff up all the time.

 

[Titan]

Sao18 has it correct. Stepped up basis when inherited plus any extra basis/closing costs.

Capital gains tax rate applies. That all will depend on your current tax bracket - most likely 15% based on your explanation. But could be partially 0%, depending on your income level.

There's no total avoidance of the tax. But options such as a like-kind exchange would defer those taxes. It might help you at a later date...it might hurt you.

 

[Hooknbullet2]

Listen to Wapiti7. He knows what he’s talking about. I just went through this a couple years ago.