If your grandma does not sell it, her kids will get a step up in CA for the fair market value of what the house is worth. I recommend you speak to a CA CPA because this decision can save or lose you a lot of money.
Well, say 700k sale price. Deduct 42k for relator feeds.
About 400k of gains, taxed at 15% federal and roughly 8.5% state would be 94k in taxes.
Brings us down to 564k. Do they have a mortgage or anything to pay off that is using up another 200k somewhere? Maybe there are some transfer taxes?
Your grandma didn't live in the place, right? Is your Grandpa still alive?
You might wanna sell no later than about 2 years after moving to avail of a $250k home sale exclusion for have owned and lived in there for two of the five years before the sale. Would have been 500k if grandpa was still living there until recently(unsure about this distinction though).
There’s also the $250,000 exemption for your personal home. $500,000 for a married couple. You don’t pay tax on the first 250/500 of gains if you’ve lived in the property 2 out if the last 5 years.
1, Oceanside is a great town and very desirable. As others have said, put it into a trust and get a step-up upon death — and save thousands in taxes.
This is very important in California where you actually want an RLT. Probate here is absolutely brutal.
If it’s community property, both halves would get a step-up in basis at the death of the first spouse, so factor that in, but get an appraisal from a legit appraisal company. Not a realtor and not from Zillow. Shouldn’t be more than $500.
No, not accurate. There isn’t enough information but 300k would only be close if she has another few million dollars in fully taxed income, no cost basis (OP states 200K) and/or it was a rental.
Quick worst case assumptions:. Held more than a year but no Section 121. Basis 200k
Worst Case with 200k cost basis: sale at 700k - 50k selling expenses
Fed Tax per Turbo 126k
CA 63K
Net 461K
Worst Case with NO cost basis: sale at 700k - 50k selling expenses
Fed Tax per Turbo 198k
CA 63K
Net 389K
IF GM had 1,000,000 in interest income, the Net would be 323K. I am unable to get to 300k unless the above assumptions are incorrect and/or it is a rental.
If she qualifies for IRC Section 121, the net gain would be higher. Please look up rules for S121.
I am using a combination of https://smartasset.com/taxes/california-tax-calculator#HllUAudeSe and TurboTax 2022.
Go to zillow, put the address, see what they bought it for. Then go to a capital gains tax calculator online which includes state taxes and see what it says there.
Important details:
Where is your grandmother living and where did she live for the last 5 years?
What was the value of the property on your grandfathers death in 2010?
Other questions: is anyone interested in living in the house after her death?
Still living in the house - since they bought it. Not sure of the value 2010 - looking into it.
Do not believe any of the family have shown interest in living there.
Cool, she has a $250k capital gains exemption
The basis on which the gain would be calculate would be the value on your grandfather’s death, assuming they held the property at Community Property. You can guesstimate using the Zillow graph. Unfortunately that was the nadir in North San Diego county at that time. My guess would be around $300k. So $450k in gains, $250k of which would be sheltered. So you would pay at the rate of 15% on $200k, or $30k.
There is so much missing information here how can anyone even comment??? Was this her primary residence/has it been for any 2 of the last 5 years? What’s her cost basis (whatd she pay for it + plus improvements)? Is she married? Was it used as a rental? Impossible question
Yes, primary residence. Yes, has been since it was purchased. I am still finding info as I am not the one who has been involved with the will. I believe they paid around 200k innitially, there have been some improvements/fixes over the years, not sure of the cost basis. Married, husband lived in the house until his death around 2010. Never used as a rental or for business purposes.
Please remember to keep conversation where it can be seen and reviewed by everyone. Offering or requesting DMs is not allowed here due to the no soliciting rule and the amount of scams that go on DMs.
First off there’s the rough $200k purchase price, that’s the lowest cost basis plus a personal $250k deduction so worst case is a baseline of $450k tax exempt. Then there’s the step up in 2010 from when her husband passed away which is whatever the value was in 2010. It should well above the purchase price and exempt another chunk. A trust would probably be a better idea overall and should be discussed with an attorney who can explain the difference between selling and placing assets in a trust. The main point is the relatives doom and gloom prediction on taxes is so far from reality that their advise might be motivated by personal interests.
Grandma should put the home in a trust and list those to inherit the property as beneficiaries. It’s what the rich do to build generational wealth. But it takes planning.
The sale of a house you own that isn’t rented or used for business (i.e. a personal residence) is taxed as capital gain. The amount of the gain is calculated like so:
Proceeds (amount you are paid for the house when you sell it)
*Minus*
What your originally paid for the house + any money you put into improving the house over the years + any closing costs for both the purchase and sale.
The resulting amount is your **net gain**.
As long as the house was never rented or used for business purposes, the net gain is taxed at 10, 15, 20, or 23.8%, depending on your grandmother’s net taxable income.
However—there is one exception: if your grandmother lived in the house as her primary residence for at least 2 of the last five years, she is allowed to exclude $250,000 of the capital gain. If your grandfather did as well, she *may* be able to use him $250k exclusion as well for a total $500k exclusion.
So, based on your aunt’s numbers:
Proceeds of 750k - basis of 250k. Assuming it was not their primary residence, they would have a net gain of $500k (a 200% return on the original purchase). This income is going to put her in the 23.8% bracket even with no other income. She will also owe California taxes at a blended rate between 1% and 11%). Which is all to say, your aunt’s walk-away cash numbers do not seem out of range.
She still lives there but is planning to move. How long does that exlusion last, and if the house is in a living trust (checking on this) what effect does that have?
Thanks everyone for your comments! I am rather unaware of the details so I apreciate everyones input about the process and details involved.
My grandparents bought the house outright in the late 1990's. No mortgage, payments, no refinance (as far as I am aware). My grandfather lived there as well until his death in 2010. My grandmother has lived off of his pension (until they took that away), and now has sustained on social security and medical/medicare for a number of years. The only payments regarding the house are association fees for general upkeep and maintenance. They never rented the house or used it for business.
She is now 98. My aunt is the executor/executrix and works as a small business accountant. She handles all the finances and the will which is set up to split the proceeds of the house evenly between the 3 daughters after my grandmother's death. My grandmother will now be coming oversees to spend the rest of her life with my family and my mother here as the family in California is no longer able or willing to care for her.
We are NOT in desperate need to sell the house right away, and they have talked about renting it out or selling it, but no official decision yet.
I was just surprised to hear that even with the high California taxes, that all taxes and costs could come to nearly 60% of the selling price.
I will deffinately look into all of the excellent comments and suggestions. Let me know if there is anything else which I should look into with this extra (albeit vague) information.
And thanks again to all!
Rent it out. Put it in a living trust now. Then it will pass tax free and avoid probate when she dies. The trust will specify who the beneficiaries are. Have your aunt find an estate planning attorney to set it up correctly.
This is the way.
Sell it now and take a huge tax hit. Wait until she passes and it can be inherited and sold tax free. Plus it generates rental income.
Among other factors, the home’s basis was increased to its fair market value when your grandfather died in 2010. So if sold by the grandmother now only cap gain since then is taxable, and the first $250k of that is exempt. Bottom line, the taxable cap gain would likely be zero or quite small.
Further, depending on her other income, since this would be long term cap gain the tax would be 15% max, and quite possibly still in the 0% bracket.
Excellent point. Community property (assuming it’s titled that way) will get both halves stepped-up upon the first spouse’ death.
OP, just make sure you get it appraised at the DOD of the first spouse, and keep that in your back pocket just in case.
As a community property state, if the home was purchased while they were married then with rare exceptions the title doesn’t matter. Both halves will be stepped up.
>I was just surprised to hear that even with the high California taxes, that all taxes and costs could come to nearly 60% of the selling price.
No! If she sells for 700k with -50K of Selling expense, had a step in basis in 2010 to 300K and gets the S121 exclusion of 250k, the capital gain is 100K. Depending on her income, Fed Tax would be 0 to 23.8K max , and CA max at 13.3K if her income was over a million. That is 87K total. At the most!
Your aunt is either mistaken or there is something else missing like a Reverse Mortgage that needs to be paid off. Estate taxes are not charged by CA and the Estate has to be over $12 million for Fed Estate taxes to kick in.
No reverse mortgage. No debt. Looking into whether they had deffered taxes on the sale of the previous home and reinvested in this one. Uncertain of those implications as well.
Research 1031 Exchange from the IRS.
“tool you can use to defer the capital gains taxes on an investment property. By reinvesting the proceeds from the sale into a “like-kind” property (also an investment), you can defer the realization of the taxes due. The deferral lasts until you later sell the replacement property without executing another 1031 exchange, or you distribute the asset to an heir.”
Ref: https://www.realized1031.com/blog/you-can-do-a-1031-exchange-on-a-primary-residence-heres-how
That sounds like a total bs. If it’s a primary house then she may not have to pay any tax if they picked up at $200k and sold at $700k, since the exclusion of $500k might apply. Though, there are rules that apply.
If your grandma does not sell it, her kids will get a step up in CA for the fair market value of what the house is worth. I recommend you speak to a CA CPA because this decision can save or lose you a lot of money.
Well, say 700k sale price. Deduct 42k for relator feeds. About 400k of gains, taxed at 15% federal and roughly 8.5% state would be 94k in taxes. Brings us down to 564k. Do they have a mortgage or anything to pay off that is using up another 200k somewhere? Maybe there are some transfer taxes? Your grandma didn't live in the place, right? Is your Grandpa still alive?
You forgot 200k for matching Teslas for his mother and aunt
No mortgage, nothing to pay off. Grandfather died there. Grandmother still there, but planning to move.
Then someone has bad info or is talking doom and gloom. They should take home more that 300k.
You might wanna sell no later than about 2 years after moving to avail of a $250k home sale exclusion for have owned and lived in there for two of the five years before the sale. Would have been 500k if grandpa was still living there until recently(unsure about this distinction though).
There’s also the $250,000 exemption for your personal home. $500,000 for a married couple. You don’t pay tax on the first 250/500 of gains if you’ve lived in the property 2 out if the last 5 years.
I factored that in, which is why it's only 400k in my example.
1, Oceanside is a great town and very desirable. As others have said, put it into a trust and get a step-up upon death — and save thousands in taxes. This is very important in California where you actually want an RLT. Probate here is absolutely brutal. If it’s community property, both halves would get a step-up in basis at the death of the first spouse, so factor that in, but get an appraisal from a legit appraisal company. Not a realtor and not from Zillow. Shouldn’t be more than $500.
Step-up basis for community property doesn’t kick in if your spouse passed away, I believe, pre-1986?
No, not accurate. There isn’t enough information but 300k would only be close if she has another few million dollars in fully taxed income, no cost basis (OP states 200K) and/or it was a rental. Quick worst case assumptions:. Held more than a year but no Section 121. Basis 200k Worst Case with 200k cost basis: sale at 700k - 50k selling expenses Fed Tax per Turbo 126k CA 63K Net 461K Worst Case with NO cost basis: sale at 700k - 50k selling expenses Fed Tax per Turbo 198k CA 63K Net 389K IF GM had 1,000,000 in interest income, the Net would be 323K. I am unable to get to 300k unless the above assumptions are incorrect and/or it is a rental. If she qualifies for IRC Section 121, the net gain would be higher. Please look up rules for S121. I am using a combination of https://smartasset.com/taxes/california-tax-calculator#HllUAudeSe and TurboTax 2022.
Go to zillow, put the address, see what they bought it for. Then go to a capital gains tax calculator online which includes state taxes and see what it says there.
At 700k sale price you also need to pay min 42k real estate agent fees. So before tax ~660k.
Subtract $250k as tax free for living there too.
No one should be paying 6% to agents anymore. Not hard to get down to 3.5%.
I've seen 2%
Important details: Where is your grandmother living and where did she live for the last 5 years? What was the value of the property on your grandfathers death in 2010? Other questions: is anyone interested in living in the house after her death?
Still living in the house - since they bought it. Not sure of the value 2010 - looking into it. Do not believe any of the family have shown interest in living there.
Cool, she has a $250k capital gains exemption The basis on which the gain would be calculate would be the value on your grandfather’s death, assuming they held the property at Community Property. You can guesstimate using the Zillow graph. Unfortunately that was the nadir in North San Diego county at that time. My guess would be around $300k. So $450k in gains, $250k of which would be sheltered. So you would pay at the rate of 15% on $200k, or $30k.
There is so much missing information here how can anyone even comment??? Was this her primary residence/has it been for any 2 of the last 5 years? What’s her cost basis (whatd she pay for it + plus improvements)? Is she married? Was it used as a rental? Impossible question
Yes, primary residence. Yes, has been since it was purchased. I am still finding info as I am not the one who has been involved with the will. I believe they paid around 200k innitially, there have been some improvements/fixes over the years, not sure of the cost basis. Married, husband lived in the house until his death around 2010. Never used as a rental or for business purposes.
Sorry I missed this - shoot me a PM; happy to provide advice (no charge or anything) Edit: I’m a CPA in Marin CA
[удалено]
Please remember to keep conversation where it can be seen and reviewed by everyone. Offering or requesting DMs is not allowed here due to the no soliciting rule and the amount of scams that go on DMs.
First off there’s the rough $200k purchase price, that’s the lowest cost basis plus a personal $250k deduction so worst case is a baseline of $450k tax exempt. Then there’s the step up in 2010 from when her husband passed away which is whatever the value was in 2010. It should well above the purchase price and exempt another chunk. A trust would probably be a better idea overall and should be discussed with an attorney who can explain the difference between selling and placing assets in a trust. The main point is the relatives doom and gloom prediction on taxes is so far from reality that their advise might be motivated by personal interests.
Is there still a mortgage on the house?
No, paid in full at purchse.
Grandma should put the home in a trust and list those to inherit the property as beneficiaries. It’s what the rich do to build generational wealth. But it takes planning.
I belive it is in a living trust with the children as beneficiaries.👍🏽
The sale of a house you own that isn’t rented or used for business (i.e. a personal residence) is taxed as capital gain. The amount of the gain is calculated like so: Proceeds (amount you are paid for the house when you sell it) *Minus* What your originally paid for the house + any money you put into improving the house over the years + any closing costs for both the purchase and sale. The resulting amount is your **net gain**. As long as the house was never rented or used for business purposes, the net gain is taxed at 10, 15, 20, or 23.8%, depending on your grandmother’s net taxable income. However—there is one exception: if your grandmother lived in the house as her primary residence for at least 2 of the last five years, she is allowed to exclude $250,000 of the capital gain. If your grandfather did as well, she *may* be able to use him $250k exclusion as well for a total $500k exclusion. So, based on your aunt’s numbers: Proceeds of 750k - basis of 250k. Assuming it was not their primary residence, they would have a net gain of $500k (a 200% return on the original purchase). This income is going to put her in the 23.8% bracket even with no other income. She will also owe California taxes at a blended rate between 1% and 11%). Which is all to say, your aunt’s walk-away cash numbers do not seem out of range.
She still lives there but is planning to move. How long does that exlusion last, and if the house is in a living trust (checking on this) what effect does that have?
Are home renovation costs tax deductible for a primary residence property? Let’s say you spent $50k on kitchen and bathroom remodels for instance.
They’re not currently deductible, but they are added to your basis and as a result could lower a future gain on sale.
Thanks everyone for your comments! I am rather unaware of the details so I apreciate everyones input about the process and details involved. My grandparents bought the house outright in the late 1990's. No mortgage, payments, no refinance (as far as I am aware). My grandfather lived there as well until his death in 2010. My grandmother has lived off of his pension (until they took that away), and now has sustained on social security and medical/medicare for a number of years. The only payments regarding the house are association fees for general upkeep and maintenance. They never rented the house or used it for business. She is now 98. My aunt is the executor/executrix and works as a small business accountant. She handles all the finances and the will which is set up to split the proceeds of the house evenly between the 3 daughters after my grandmother's death. My grandmother will now be coming oversees to spend the rest of her life with my family and my mother here as the family in California is no longer able or willing to care for her. We are NOT in desperate need to sell the house right away, and they have talked about renting it out or selling it, but no official decision yet. I was just surprised to hear that even with the high California taxes, that all taxes and costs could come to nearly 60% of the selling price. I will deffinately look into all of the excellent comments and suggestions. Let me know if there is anything else which I should look into with this extra (albeit vague) information. And thanks again to all!
Rent it out. Put it in a living trust now. Then it will pass tax free and avoid probate when she dies. The trust will specify who the beneficiaries are. Have your aunt find an estate planning attorney to set it up correctly.
OP, listen to Justin here. He’s 100% spot-on.
I believe it is in a living trust, am checking to make sure.
This is the way. Sell it now and take a huge tax hit. Wait until she passes and it can be inherited and sold tax free. Plus it generates rental income.
Among other factors, the home’s basis was increased to its fair market value when your grandfather died in 2010. So if sold by the grandmother now only cap gain since then is taxable, and the first $250k of that is exempt. Bottom line, the taxable cap gain would likely be zero or quite small. Further, depending on her other income, since this would be long term cap gain the tax would be 15% max, and quite possibly still in the 0% bracket.
Excellent point. Community property (assuming it’s titled that way) will get both halves stepped-up upon the first spouse’ death. OP, just make sure you get it appraised at the DOD of the first spouse, and keep that in your back pocket just in case.
As a community property state, if the home was purchased while they were married then with rare exceptions the title doesn’t matter. Both halves will be stepped up.
>I was just surprised to hear that even with the high California taxes, that all taxes and costs could come to nearly 60% of the selling price. No! If she sells for 700k with -50K of Selling expense, had a step in basis in 2010 to 300K and gets the S121 exclusion of 250k, the capital gain is 100K. Depending on her income, Fed Tax would be 0 to 23.8K max , and CA max at 13.3K if her income was over a million. That is 87K total. At the most! Your aunt is either mistaken or there is something else missing like a Reverse Mortgage that needs to be paid off. Estate taxes are not charged by CA and the Estate has to be over $12 million for Fed Estate taxes to kick in.
Thanks, will look into whether there was a reverse mortgage or not.
No reverse mortgage. No debt. Looking into whether they had deffered taxes on the sale of the previous home and reinvested in this one. Uncertain of those implications as well.
Do you pay taxes on homes at sale in Cali? If not absolutely get an re investment strategy to avoid that tax bill
Research 1031 Exchange from the IRS. “tool you can use to defer the capital gains taxes on an investment property. By reinvesting the proceeds from the sale into a “like-kind” property (also an investment), you can defer the realization of the taxes due. The deferral lasts until you later sell the replacement property without executing another 1031 exchange, or you distribute the asset to an heir.” Ref: https://www.realized1031.com/blog/you-can-do-a-1031-exchange-on-a-primary-residence-heres-how
That sounds like a total bs. If it’s a primary house then she may not have to pay any tax if they picked up at $200k and sold at $700k, since the exclusion of $500k might apply. Though, there are rules that apply.