Re:must sell by 12/31 to gt $500k exclusion - Posted by TomC (MD)
Posted by TomC (MD) on November 03, 2000 at 13:59:03:
This is where you may be able to step in as a “problem solver”. That is, if the tax problem really even exists. Huh?
You see, when the husband died, his 50% of the home (assuming they held title with joint tenancy - very common for married folks) should have conveyed to his wife at CURRENT market value, not his original cost basis. So her cost basis is much higher that the $56K (half of $112K) that she assumes.
In addition, the cost of any improvements like additional bedrooms, decks, baths, upgraded kitchen that increased the value of the property should be added into her cost basis to drive down the taxable portion of the profit.
OK, assuming we don’t know about the stuff I wrote above or if I am completely wrong…
Get the owner to sell you the house on a land contract/contract for deed with a small downpayment before her 12/31/00 deadline. Assuming your FMV estimate is truly correct, make the sales price to you well below market value like around $700K. The IRS treats this as an installment sale, since a transfer of equitable interest has occurred. Have her defer the first payment for 6 months to give you time to find a retail buyer at the $800k level.
You then do a double-close on the house, and at that time the seller receives her $700K (less taxes), and you walk away with a nice paycheck.
Her taxable portion will be $700k less her cost basis.
$700K sales price
-112K purchase price
$538K net profit
-500K tax exemption
$38K taxed as long-term capital gains
So the seller would have to pay taxes on only the $38K, and the rest of the profit is tax free.