school me on taxes on money made from real estate..

[lotusdrift]

I don't know much.




I may have to get professional assistance with this, but I'd like to see what OT says. I'll explain my particular situation in a bit.

* Registered users of the site do not see these ads.

[lotusdrift]

boring subject for a friday I guess

An individual can exclude up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale. The two years of residency do not have to be continuous. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. There are allowances and exceptions for military service, disability, partial residence and other reasons. See IRS Publication 523.

So I can sell a property and not be taxed the earned income at all up to 250k if it was a primary residence?

[Beer:30]

Originally Posted by lotusdrift

boring subject for a friday I guess





So I can sell a property and not be taxed the earned income at all up to 250k if it was a primary residence?

Yes....assuming you lived there 2 years

[WRXVT]

^its not earned income- its a capital gain. you can exclude it, if you are single, and you need to have been there for at least 2 years int he past 5. if you are married you can exclude the gain up to 500k.

[lotusdrift]

wow, this is a nice tax break.

found a website that really explains it.
http://www.bankrate.com/brm/news/rea...20041018a1.asp


This a relief

[fliz]

Originally Posted by lotusdrift

wow, this is a nice tax break.

found a website that really explains it.
http://www.bankrate.com/brm/news/rea...20041018a1.asp


This a relief

Yep...and that's 250/500 of the PROFIT from the sale, so it'd be hard to beat that limit.

[WRXVT]

now the common notion that you won't be taxed if you get into another home purchase is false... so don't get caught in that trap.

[lotusdrift]

Basically I have inlaws that are moving in with us into a new house. We are going to build an inlaw suite onto it once we make the purchase.


They are gifting the gains made on their current property to us to be used for the down payment. I was really concerned that because they weren't putting the gains into a new home under their name that it would see be heavily taxed (kind of what wrxvt was saying). Relieved to find out otherwise.

[fliz]

Originally Posted by lotusdrift

Basically I have inlaws that are moving in with us into a new house. We are going to build an inlaw suite onto it once we make the purchase.


They are gifting the gains made on their current property to us to be used for the down payment. I was really concerned that because they weren't putting the gains into a new home under their name that it would see be heavily taxed (kind of what wrxvt was saying). Relieved to find out otherwise.

They won't be taxed on the gains...but I would guess you might be taxed on the gift.

[elseed]

Originally Posted by fliz

They won't be taxed on the gains...but I would guess you might be taxed on the gift.

Seriously -- this should be a Gift Tax thread.

[lotusdrift]

well crap.


going to google now...

[fliz]

Originally Posted by lotusdrift

well crap.


going to google now...

Gifts are 10K/yr per person. So they could give you and your spouse 40K tax free.

[lotusdrift]

ya, still not in the free and clear ^


gift tax is confusing

In 2001, every American received a "credit" against federal Estate and Gift Taxes of $220,550 which was equivalent to transferring $675,000 tax free to your heirs. And, if you were married, and your spouse (if an American) also used the $675,000, you may, as a couple, give $1.35 million to your heirs free of Estate Tax. Beginning in 2006, 2007, 2008, the amount you can pass tax free to your heirs increases $2 million and then to $3.5 million in 2009. In 2010, the estate tax (but not the gift tax) expires; in 2011, the estate tax again becomes effective at the 2002 exemption level for deaths occurring in 2011 and thereafter.

This credit is referred to as the "unified" credit because federal gift and Estate Taxation are integrated into one unified tax system. There is no Estate or Gift Tax on the first $780,800 of your taxable gifts and transfers at death. You ante up when the sum reaches over $780,800. For example, suppose you give $25,000 to your sister in 2006 as a gift during your life. The first $12,000 of your $25,000 gift is tax-free. You will either pay a Gift Tax on the excess over $12,000 or take advantage of the $780,800 unified credit to avoid paying the tax on your gift-giving. Using the latter option will reduce the amount available to offset the Estate Tax upon your death. On the other hand, if you report and pay the tax, and later die, these previously taxed gifts are added back to your estate, the Estate Tax recalculated, and the amount of Gift Taxes you previously paid on the excess are credited against any final Estate Tax due.

It looks to me like they can take advantage of the unified credit, and give us the full amount tax free. There won't be a huge estate being passed along should they pass away, so there is no concern there.

[WRXVT]

don't worry about the gift tax... unless its an assload of money... it goes against their allowance but you won't have to pay income tax on it.

Besides, generally as the receiver of the gift you don't pay gift taxes

so, your still good.

[lotusdrift]

Originally Posted by WRXVT

don't worry about the gift tax... unless its an assload of money... it goes against their allowance but you won't have to pay income tax on it.

Besides, generally as the receiver of the gift you don't pay gift taxes

so, your still good.

Well it is important that no parties are screwed. It is an assload of money to us, I don't know if it is an assload to the government.

It is certainly much less than the figure quoted for the unified credit.

[JewPac42]

Are you talking about owning a home? Or are you talking about a rental property or a real estate LLC you are a partner in for which you got a K-1?

[lotusdrift]

Originally Posted by JewPac42

Are you talking about owning a home? Or are you talking about a rental property or a real estate LLC you are a pertner in for which you got a K-1?

we are selling our private residence and buying a new private residence that we are going to add an inlaw suite onto. The title for the house will be in mine and my wife's name only.


The inlaws are selling their private residence in boca raton FL and making some money in the process. They are gifting us a very large sum to use as a downpayment on the new home which they will also live in but not own (we can put them on the title, doesn't really matter to us, but that is not the plan as of now).



hope that clears it up.

[JewPac42]

I dont know anything about that. But, good luck living with the inlaws, that should be nothing but fun.

[WRXVT]

Originally Posted by lotusdrift

Well it is important that no parties are screwed. It is an assload of money to us, I don't know if it is an assload to the government.

It is certainly much less than the figure quoted for the unified credit.

yeah- but with the unified credit, as you mention all should be fine. They will also have 48k if you and the rents are married to give that won't even touch that unified credit. So if they gift 150k their lifetime credit goes down by 102k... not too bad, considering the credit at that time may be a couple mill.

[lotusdrift]

Originally Posted by JewPac42

I dont know anything about that. But, good luck living with the inlaws, that should be nothing but fun.

father in law has parkinsons and could really use the assistance from us.


Besides, they will have their own house. It will just be sharing a wall with our house. Plenty of privacy.

[lotusdrift]

Originally Posted by WRXVT

yeah- but with the unified credit, as you mention all should be fine. They will also have 48k if you and the rents are married to give that won't even touch that unified credit. So if they gift 150k their lifetime credit goes down by 102k... not too bad, considering the credit at that time may be a couple mill.

cool, that is how I am reading it as well. Good news

[fliz]

I would think that a better solution might be to set up something where they "loan" you the money, and the debt is repaid by allowing them to live there rent-free.

Of course, you'd definitely need to consult an attorney to set up something like that.

[double 0 2 rex]

I don't know anything about US income taxes, but if they're on the title of your new home, then the amount they put in it as a down payment is not a gift.

[rogue]

Originally Posted by lotusdrift

Basically I have inlaws that are moving in with us into a new house. We are going to build an inlaw suite onto it once we make the purchase.


They are gifting the gains made on their current property to us to be used for the down payment. I was really concerned that because they weren't putting the gains into a new home under their name that it would see be heavily taxed (kind of what wrxvt was saying). Relieved to find out otherwise.

Yeah, that's totally different from you making capital gains off your own home sale

[lotusdrift]

Originally Posted by rogue

Yeah, that's totally different from you making capital gains off your own home sale

well I am in that situation as well, but now I know that it won't be taxed, and that is


My main concern was the fact they weren't putting their money into a new home, so from the way things used to work I thought they were going to get really screwed on taxes.