Posted on: 20th Jun, 2009 07:36 pm
When I am given the home that I live in through a Quitdeed or a Warranty Deed from my Mom (with no profit), if and when I decide to sell the home, and after meeting all requirements....live in my home for at least 2 years out of a 5 year period.....what at that time will be my BASE amount that I then ascertain my capital gains from? Example: If my Mom originally purchased the home for 60,000 in 1973 and it now has a fair market value of 670,000 does that mean that the BASIS is at 60,000 since that it what she paid for it and I did NOT inherit it from her, but rather had it gifted to me- and her lifetime estate will take care of this gift amount? If this thinking is correct then: sale price of 670,000 minus 60,000 minus 500,000 (married exemption, main residency and meet 2 year requirement.....leaves a capital gains of 110,000 and 20% of that amount is: $22,000 that I would have to pay? Am I figuring all of this correctly?OR is there something that happens to my base amount (step up)?
Hi Guest,
Since you received the property from your mom as a gift through a quitclaim deed, the basis will remain the same as it would have been in the hands of your mom. As a recipient of the gift, you get the same basis as your mom. In case of gifted properties, the stepped-up basis calculation does not apply. In a stepped-up basis calculation, applicable in case of an inherited property, the fair market value of the property at the time of the original owner's death is taken as the basis.
Thus, in your case, the basis for capital gains tax calculation will be $60k. If you can sell the property at the current market value, which is 670k, you will have a gain of $610k. Now if you have used the property as your primary residence for at least 2 years out of the 5 years, you can claim capital gains tax exemption of $500k as married couple. Thus, your calculation seems correct. However, a consultation with a tax consultant regarding this will be good option for you.
Thanks,
Jerry
Since you received the property from your mom as a gift through a quitclaim deed, the basis will remain the same as it would have been in the hands of your mom. As a recipient of the gift, you get the same basis as your mom. In case of gifted properties, the stepped-up basis calculation does not apply. In a stepped-up basis calculation, applicable in case of an inherited property, the fair market value of the property at the time of the original owner's death is taken as the basis.
Thus, in your case, the basis for capital gains tax calculation will be $60k. If you can sell the property at the current market value, which is 670k, you will have a gain of $610k. Now if you have used the property as your primary residence for at least 2 years out of the 5 years, you can claim capital gains tax exemption of $500k as married couple. Thus, your calculation seems correct. However, a consultation with a tax consultant regarding this will be good option for you.
Thanks,
Jerry
Is 20% always the percentage that one figures ones capital gains with, or is there a scale of some kind that is dependent on ones yearly income, or something like this? I have also been reading that in 2010 the Step Up is going to be eliminated anyway if you were to inherit an asset from someones estate, and that instead the custodian of the estate has up to 1.3 million dollars to disciminate throughout the entire estate, also keeping in consideration the current inflation rate of that year the individual passed away. Is this also right, or do you think that this too will go away when congress begins to address the 2010 phase out system?
Hi,
The percentage of capital gains tax depends on the type of asset you're selling, the holding period of the asset and also on which tax bracket you're in. Apart from federal capital gains tax rates, your capital gains tax depends on your state income taxes.
For short term capital gains taxes with holding period of less than a year, the ordinary income tax rates up to 35% apply. For long term capital gains taxes, the tax rate is 5% for taxpayers in the 10% and 15% tax brackets and 15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets. There's a zero percent tax rate in effect from '08 to '10. This rate applies to tax payers in the tax bracket of 10% and 15%.
The percentage of capital gains tax depends on the type of asset you're selling, the holding period of the asset and also on which tax bracket you're in. Apart from federal capital gains tax rates, your capital gains tax depends on your state income taxes.
For short term capital gains taxes with holding period of less than a year, the ordinary income tax rates up to 35% apply. For long term capital gains taxes, the tax rate is 5% for taxpayers in the 10% and 15% tax brackets and 15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets. There's a zero percent tax rate in effect from '08 to '10. This rate applies to tax payers in the tax bracket of 10% and 15%.
If the estate tax is repealed in 2010, the existing system of providing for a stepped up basis in an inherited property will be eliminated. Instead of a stepped up basis, a carryover basis regime will start that will require the beneficiaries to take as the basis the lower of the following:
A. Decedent's adjusted basis in the property
B. The fair market value of the property as of the decedent's death.
A. Decedent's adjusted basis in the property
B. The fair market value of the property as of the decedent's death.