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Real Estate Tax Base Question
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Real Estate Tax Base Question
<font size="1">Can you take a tax deduction on that recent purchase? Talk to others to get free tax advice and get tips on how to complete your IRS federal tax forms.</font>
My Mother-in-Law recently gave my wife a house. The house property tax is set under California's Prop 13 rules so the taxes are very low. The accessed taxes are on $70,000 +/-.
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Cat:827966ee-6d39-4ef7-98a5-0157a43092f8Forum:a882faf9-edb3-472d-896c-a5e64a486dfc
Cat:827966ee-6d39-4ef7-98a5-0157a43092f8Forum:a882faf9-edb3-472d-896c-a5e64a486dfcDiscussion:3559f9e4-fa68-4506-bd42-eab703a74d5a
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Real Estate Tax Base Question
posted at August 17, 2011 2:00 PM EDT
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Posts: 3
First: August 17, 2011 Last: September 11, 2011 |
My Mother-in-Law recently gave my wife a house. The house property tax is set under California's Prop 13 rules so the taxes are very low. The accessed taxes are on $70,000 +/-. My question is whether or not this is the tax based that IRS will use if we sell the house? In other words, if $70,000 is the base and we sell the house for $470,000 we will be paying capital gains tax on $400,000. But, if we are allowed to have the house appraised to determine fair market value today, we may not have any capital gains. Thanks, I appreciateany help we can get. Jim |
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Re: Real Estate Tax Base Question
posted at August 17, 2011 5:54 PM EDT
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Posts: 1828
First: June 12, 2009 Last: May 15, 2013 |
Have you checked out the IRS site. Use this link, I hope it helps out. IRS Property as a gift. |
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Re: Real Estate Tax Base Question
posted at September 9, 2011 6:09 PM EDT
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Posts: 4
First: September 9, 2011 Last: September 9, 2011 |
I would check with your CPA to get a better understanding of the details of your situation. As CATOW mentioned, it was gifted or was it in an estate or trust? Capital gains, personal income tax, and estate tax can all come into play here. A competent CPA will help you save money and protect yourself. |
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Re: Real Estate Tax Base Question
posted at September 11, 2011 8:44 PM EDT
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Posts: 3
First: August 17, 2011 Last: September 11, 2011 |
In Response to Re: Real Estate Tax Base Question: Have you checked out the IRS site. Use this link, I hope it helps out. IRS Property as a gift. Posted by cat0w I have but am unable to find the answer. Jim |
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Re: Real Estate Tax Base Question
posted at September 11, 2011 8:45 PM EDT
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Posts: 3
First: August 17, 2011 Last: September 11, 2011 |
In Response to Re: Real Estate Tax Base Question: I would check with your CPA to get a better understanding of the details of your situation. As CATOW mentioned, it was gifted or was it in an estate or trust? Capital gains, personal income tax, and estate tax can all come into play here. A competent CPA will help you save money and protect yourself. Posted by saavyretiree I was hoping someone would hav ethe answer here and save some change that I will have to spend with a CPA. Jim |
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Re: Real Estate Tax Base Question
posted at December 20, 2011 8:44 AM EST
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Posts: 1
First: December 20, 2011 Last: December 20, 2011 |
Having just read about this on a Fidelity Investments site and other sources, the issue is how did your wife receive the house? If it was an inheritance from an estate, the cost basis for the house for future sales is the current market value. If the house was jsut deeded over to your wife, it would most likely retain the older lower value to be used to determine tax liablity. Of course, just handing over ~$500k of assets brings up issues of gift tax, etc. Best to check with your lawyer and CPA for advice. |
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Re: Real Estate Tax Base Question
posted at December 20, 2011 9:28 AM EST
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Posts: 1921
First: November 27, 2011 Last: April 13, 2013 |
The 1st question is whether it was a gift or an inheritance from the MIL to your wife. The property tax assessed value is figured somewhat differently that a market based appraisal. In either of the above instances, gift or inheritance, you must secure a market based appraisal on what the house was worth on the date of transfer - this will give your wife her basis figure in the house for tax reasons going forward. This is NOT an area where you need to scrimp on professional advice because it could cost you big time down the road. I don't know if this is the case or not but one thing might be worth pointing out to you - IF the mother in law has to go into a nursing home and she has limited funds to pay for it - MEDICAID has a (5) year look back period to recover any assets that might have been given away. They won't pay until this is rectified or they will place a lien on the property or the receiver for repay. So that list of professional help might be getting longer - CPA, appraiser, Real Estate or Eldercare lawyer - |
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Re: Real Estate Tax Base Question
posted at December 22, 2011 2:33 PM EST
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Posts: 2
First: December 22, 2011 Last: December 22, 2011 |
In Response to Real Estate Tax Base Question: My Mother-in-Law recently gave my wife a house. The house property tax is set under California's Prop 13 rules so the taxes are very low. The accessed taxes are on $70,000 +/-. My question is whether or not this is the tax based that IRS will use if we sell the house? In other words, if $70,000 is the base and we sell the house for $470,000 we will be paying capital gains tax on $400,000. But, if we are allowed to have the house appraised to determine fair market value today, we may not have any capital gains. Thanks, I appreciateany help we can get. Jim Posted by jgeidl Since you say your MIL recently gave your wife a house, I assume this was a gift while MIL was still alive. If your wife inherited this house when her mother passed my answer would be different. This means that a U. S. Gift Tax Return on Form 709 is REQUIRED to be filed, though no tax may be due. Your wife's basis in the house, because of the gift tax rules, will be her mother's basis in the house assuming the house has appreciated in value. If the house has depreciated to a point BELOW mom's cost basis different rules apply which I will not go over here. The difference between basis and adjusted sale price is your gain. I'd be greatly surprised if you had NO gain, even in this market, with a basis of just $70K. REMEMBER, basis is NOT what the house is appraised at. Its Mom's actual cost to buy and improve the house. It is entirely LIKELY that mom's basis is less than the tax appraisal. Next, while you noted that the real estate taxes are very low because of Prop 13, I THINK, but do NOT know for sure, that California may adjust your tax base. The purpose of Prop 13 was to keep long time residents, mostly on limited fixed incomes, from losing their homes to real estate taxes because of the increase in property values. Every house that I've seen change hands in California has resulted in the tax base getting adjusted UP to the current fair market value. Of course, this results in the new owner paying more tax than the old owner. Interestingly, when a lender issues a "good faith estimate" associated with a loan for a California house, almost all of which include an escrow provision for real estate taxes, the buyer is frequently surprised to find that the "estimate" used the real estate taxes paid by the previous owner. Assuming a real estate tax rate of just 2.5% (which may be low for your area) the difference in the tax - and the difference in the amount to be escrowed for taxes - between $70K and $470K is $10,000 - or about an additional $833 a MONTH. I can only imagine how many sales have fallen through because the buyer couldn't afford an additional $833 a month. I read another reply to your post suggesting you get with a local CPA. I noted your response that you were trying to "cut costs" a bit. I understand your desire to not pay what you don't have to, but I must agree with that poster's suggestion that you get professional help BEFORE you do anything. For the amount of money involved it would FOOLISH for you to be Penny Wise and Pound Foolish. BTW - I am an Enrolled Agent, a tax law specialist regulated by the United States Treasury Department. I have 30-years experience as a tax professional. Good luck.
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