Capital Gains tax

[PessOptimist]

Trying to get down to the nuts and bolts of this thing. Too many tangents and what ifs when you look it up.

I will do the disclaimer. This is not legal tax advice and no one replying is a legal tax expert (some may be) and no replies will be considered legal advice no matter what may or may not happen now or in the future.

A member of the household inherited some land. More than ten years ago. I think the FMV for the date the deed was changed has been determined. That ought to cover some of the questions.

The person who now owns the land is thinking about selling. Several friends advised that there are no tax problems as inheritance is not taxed. I believe that selling the land will create a capital gain based on the FMV when deeded to the person (basis) v the selling price. In other words if the FMV was $30 when acquired and the selling price is $80 then capital gain is $50. This argument goes on when discussed. I believe the friends would have been correct if the successor had sold the land at about the time they acquired it.

The actual question is this:

If the land is sold and a profit from the basis is $200k and the other AGI for that year is $60k, does the $200k kick the AGI to $269k and a tax rate of 33%? Normally the tax on that amount would be about 13.5%. Will the $60k be taxed at 33%?

I believe I am correct about the gain based on the FMV. I think the owner may be somewhat pissed when the IRS takes15-20% plus maybe an additional 3.8% for ACA.

TIA, PO

 

[Scout333]

PO, you are correct about the basis for inherited property. It is FMV at the time of inheritance not the time it is sold unless it is sold very close to the time of inheritance. The gain does increase AGI in the year it is sold. The tax rate on the capital gain should be lower than the standard rate if the property is held longer than twelve months. With these numbers it would be worthwhile to get a CPA to take a look at the transaction. As always JMHO

 

[burrocrat]

if you don't tell the irs all the details of your intentions or report the original transfer linked to the later sale and aren't a member of the tea party, then you should be ok. if you have initiated any of those actions already, then you're screwed.

the irs and nsa have one of those data sharing family plans, like att except they already pwn att, and verizon. so the fact that you've already publically posted your intentions to submit less tax remitances makes you a target. high right, one click. dial it in, drop him next shot. thank's for your enevitable contribution. some body has to do it, and you've already admitted you possess the recource. done deal. pay up sucker.

 

[PessOptimist]

if you don't tell the irs all the details of your intentions or report the original transfer linked to the later sale and aren't a member of the tea party, then you should be ok. if you have initiated any of those actions already, then you're screwed.

the irs and nsa have one of those data sharing family plans, like att except they already pwn att, and verizon. so the fact that you've already publically posted your intentions to submit less tax remitances makes you a target. high right, one click. dial it in, drop him next shot. thank's for your enevitable contribution. some body has to do it, and you've already admitted you possess the recource. done deal. pay up sucker.

That original transaction cat has been out of the bag for years. The only way out is to sever the legal tie to the owner. That will also take care of the potential problem with the AGI. Probably will take care of any questions about what to do with the TSP. But at that time all these money problems would no longer be mine.

PO

 

[k0nkuzh0n]

Will the $60k be taxed at 33%?

NO! Income taxes are MARGINAL rates. Easiest way to tell if someone actually knows how tax rates are applied is if they say "moving/changing tax brackets", they have no idea...because there is no such thing.

 

[PessOptimist]

NO! Income taxes are MARGINAL rates. Easiest way to tell if someone actually knows how tax rates are applied is if they say "moving/changing tax brackets", they have no idea...because there is no such thing.

Huh?

 

[k0nkuzh0n]

Huh?

the 200k does not affect the taxes on the 60k (where did you get the extra 9k in 269k??). Taxes are calculated marginally.

 

[James48843]

Talk to a tax advisor, because there are a number if legal ways to reduce or eliminate the tax liability. Why are they selling it? Do they need cash? Could they do an exchange of properties instead ? Have you explored doing a 1031 exchange instead of a sale? http://www.forbes.com/2010/01/26/capital-gains-tax-1031-vacation-home-personal-finance-robert-wood.html


Is the land suitable to build a primary residence on ? You may be able to deduct all improvements made over the duration of ownership . There are so many possibilities- there simply is not enough information here.

(Yes, a capital gain tax may be due, but that is at a different rate than income) . You are correct- the sale would be a long term cap gain only on the profit made of the increased valued since FMV was determined at time if inherent emcee. No, it would not be added to adjusted gross income, it would be a simple cap gain only .

However, there are a multitude of ways to work on what the tax liability could be.

You need to talk with a tax advisor and see what options are open Before you sell the land.

 

[PessOptimist]

the 200k does not affect the taxes on the 60k (where did you get the extra 9k in 269k??). Taxes are calculated marginally.

I think I get it. The percentages are coming from the 2013 tax tables in this scenario. Just trying to get a handle on how this might play out. The nine is because the nine and zero are very close together on the keyboard.

 

[PessOptimist]

Thanks for the reply. This is just the preliminary step to gather information about possible plans for the future. Nothing will happen for at least four years. Depending on the level of the crick.

Talk to a tax advisor, because there are a number if legal ways to reduce or eliminate the tax liability. Why are they selling it? Do they need cash? Could they do an exchange of properties instead ? Have you explored doing a 1031 exchange instead of a sale? Ten Things to Know About 1031 Exchanges - Forbes

Yeah, we will talk to a tax adviser. The idea of selling it is to use the proceeds for whatever the owner decides to use the money for in their twilight years. You know, party, travel, hire a full time pool boy/gardener. To augment my pitiful projected retirement income. No desire to have a vacation home and the owner has no heirs to leave anything to.

Is the land suitable to build a primary residence on ? You may be able to deduct all improvements made over the duration of ownership . There are so many possibilities- there simply is not enough information here.

The land is being farmed for cash rent. It as no buildings on it. Some capital improvements have been made. I don't think land can be depreciated. Many things to be checked out.

(Yes, a capital gain tax may be due, but that is at a different rate than income) . You are correct- the sale would be a long term cap gain only on the profit made of the increased valued since FMV was determined at time if inherent emcee. No, it would not be added to adjusted gross income, it would be a simple cap gain only .
However, there are a multitude of ways to work on what the tax liability could be.
You need to talk with a tax advisor and see what options are open Before you sell the land.

The main question I had for now has been answered. Thank You.