My wife and I received a house as a gift from her mother this year. We also sold it this year. Do we have to pay income taxes on the proceeds from the sale?
Glen from Stanardsville, Va
I do my own income taxes, but that's a difficult question to answer. You could call the IRS's toll free number and ask them, they will be able to give you the right information that is needed.
The answer to that questions depends upon if the house was your residence. If so, the answer is NO. If not, the answer is YES.
Ask whoever does your taxes.
My dad left me a house in his will. I sold it because I lived in another state. I sold the property in July and the following year when I filed taxes, I owed taxes on the money and was charged a penalty because I hadn't paid the taxes right after selling the property. You should call a tax professional and ask so you will be prepared if you have to come up with taxes and penalties.
I would contact a tax attorney.The laws are different from state to state and you also may have to add in federal tax laws as well.If you made these decisions on your own or by well meaning friends you could face serious tax consequences. Better to play it safe.
It's called capital gains, I sold my house within a year of purchasing and did not purchase another one within the next year, that caused me to owe $10K in capital gains(what you will owe depends on the money you get in your hand at closing). I filed taxes with a good accountant and he helped to bring down the 10K to 5K. You can set up installment payments with the IRS. I am paying back $150 a month right now.
Talk with a tax person. I think you have made a costly mistake and will owe capital gains!
First thing you should do, is before you make any financial decisions is to consult your CPA before you make any costly mistakes. Once they are done, it's too late!
Generally if you received the house, you assume the same tax base as your mother had. If she paid $50,000 that is your base for figuring capital gains. If the home is sold, ie, $400,000 there would be a lot of capital gains!
Inheriting a home, is always better than getting it as a gift. When the person dies, the tax base is stepped up to the value at the date of the persons death.
If the house was not your primary residence for 2 out of the last 5 years in any combination of days, the sale is taxable. If your profit is more than $250,000 for each of you, but you did live there for 2 years, the tax is on the amount over that. The profit does allow for the cost of upgrades and restoration, but not simple maintenance such as painting. Check with your tax partner or go to irs.gov for detailed information on calculating profit and tax. This is for federal, of course. Some states have taxes they impose, others just go by what the irs says, so check you local city, county and state laws as needed.
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