A sort of real estate/tax question
My mom died 2 years ago and left my sister and me her condo. My sister and I both live elsewhere. Our (shiftless) brother is living in the condo and wants to move out. When my sister and I sell the condo, will we have to pay capital gains? Obviously the condo is not either of our primary residences. I have a feeling this situation is going to be a tremendous PITA for us..... |
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| I'm no expert......for sure....but it might fall under inheritance not capital gains from a purchase. You might have to justify the price at sale compared to when you inherited it......did the price go up in 2 years?? That might be taxable. Hopefully not. |
| It depends on how it was left to you. That and the purchase price of the condo the value if the condo when your mom passed, the value now, and the value of it if/when it was placed into a trust it other vehicle. Lol In other words... It depends. If there is a gain from the sale and the derived cost basis (whatever that turns out to be) the taxes would be at the capital gains rate. However, since your brother has been living in it, it has been his primary residence and if he has any interest in the property he might be able to roll that money into another house and defer any gains. Although with the way the administration has been talking about moving capital gains to the earned income rate that might not be wise. So in other words, it depends. You need an accountant. And maybe a second opinion or two. |
| ...and you need to be looking into how you've been treating the property the last two years... As an income property? As a second home? Have you been collecting rent from the shiftless brother? Have you been taking depreciation on it? Who/how have taxes and condo fees and maintenance (if any) been paid and so forth. It probably sounds a lot harder than it is for an experienced accountant. This just must be a super common situation to handle. |
| In one case with which I'm familiar, the parent transferred the home to the children many years ago but retained a life estate. Under the law then (and currently, I believe) the life estate keeps a thread of interest in the parent's hands so when the parent passes the cost basis gets stepped up to current market value, but if the parent relinquishes the life estate now and the condo is sold the cost basis will be at the value at the time of the conveyance to the children. How that is possible I'm not sure-- perhaps the estate must at least consider the lifetime exemption of the parent of something similar, or it may just be a quirk in the accounting that allows for all of the appreciation to possibly slide under the radar like that. Fun stuff. |
| I think that's inheritance? When my grandpa died, my mom and my aunt split the money from the sale of his house and it was inheritance (which you don't have to pay tax on unless it is over a certain amount). All of his things were an 'estate' including the house and the car and all the stuff in it, everything had to be divided equally according to the will that was left and then they sold the house and divided the money from that equally too. But I'm not really sure about your situation since it's two years later now, they sold the house right away. |
| Mom left money to all 4 children and the condo to my sister and I with the stipulation that shiftless brother live there. He uses his money to pay the taxes, condo fees, etc. He gives my sister and I no money. So we are basically renting it out for free. I didn't think that it might be considered "inheritance" and therefore perhaps no taxes. That would be great! And Ron, you are right in that I think this may be a common situation. |
| Where was the "stipulation" that he live there? Is it in the deed to the property? Does he now have a life estate that requires him to pay for those things? Or was it just written into the will as an instruction... really a desire. If so, was there a time limit imposed? You might be able to be treating that property like a rental and taking depreciation on it, but brother would have to be receiving imputed (phantom) income... what a mess. Ick. Obviously I don't really have any answers for you, these are just the things that come to mind to me that I'd be prepared to answer, discuss or bring up with the accountant. |
| I am a tax preparer. Any gains you receive will be based on your basis in the property, which is the fair market value at the time you inherited it. So if it's worth less when you sell it than when you inherited, you have no gain and therefore no tax. The best (cheapest) advice I can give you is to have a local real estate agent give you a Competitive Market Analysis of its value at the date you inherited it and go from there with a tax professional. |
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