Capital Gain Tax Liability

Asked over 4 years ago - San Francisco, CA

We bought the house I live in in 1955 for $23K My spouse died in 2009 and the house was appraised at $850K. What are my capital gain tax liabilities if I sell the house? What will be my heirs’ tax liabilities if I hold it till my death? I am 91 yrs old.

Attorney answers (3)

  1. Rebecca Romero-Vigil

    Pro

    Contributor Level 7

    Answered . Steve gave a very good and detailed answer. One more thing to add, make sure you have drafted your revocable trust with your intentions that your heirs receive the house. Otherwise, your estate will have to go through probate and that will require attorneys (and their fees). Visit my website to see what is typically included in a trust package.

  2. Rebecca Romero-Vigil

    Pro

    Contributor Level 7

    Answered . Steve gave a very good and detailed answer. One more thing to add, make sure you have drafted your revocable trust with your intentions that your heirs receive the house. Otherwise, your estate will have to go through probate and that will require attorneys (and their fees). Visit my website to see what is typically included in a trust package.

    This communication does not create an attorney-client relationship.
    IRS CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, WE INFORM YOU THAT ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF(I) AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN.

  3. Steven J. Fromm

    Contributor Level 20

    Answered . Your basis in the house is comprised of two parts. The first is your half of the basis which includes the price paid plus improvements. So if you originally paid 23,000 and let us assume that you put $107,000 in improvements as of your wife's death the total basis before your wife's death would be $130,000. At that point your basis changed since you get a step up in basis for your wife's share to the fair market value at the date of your wife's death. So if the house was worth $850,000 then her 1/2 would be $425,000. As a result, your basis in the house would be $490,000 under my hypothetical (your 1/2 original basis of $65,000 plus the 1/2 step up in basis of $425,000). So if you sell for say 900,000 your gain would be $410,000. Under federal law, the first $250,000 would be tax free, so you would pay a capital gain tax on $160,000. However, note that if you do nothing your beneficiaries would get a step up in basis to the date of death value and have no capital gains at all if they sell the property near the time of your death.
    It probably makes sense to do nothing, at least from a tax perspective.

    Hope this helps. If you think this post was helpful, please check the thumbs up (helpful) tab below. Thanks.

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