Need to use Best Tax Strategy on Sale - Posted by M Lee

Posted by David Krulac on June 16, 2006 at 17:59:45:


Need to use Best Tax Strategy on Sale - Posted by M Lee

Posted by M Lee on June 14, 2006 at 23:00:34:

Hi there,

I am going to help my grandma sell a property. She was willed the property, so she did not buy. She has owned it as a rental properties.

normally the taxes will be paid on the gain between the basis and the sale price that she sells it for.

My question is what is the best strategy for her to defer and pay little on Capital Gains Taxes?

I wondered if she quit claimed the property to me, if I could take the tax burden over.

THanks for your help.


Re: Need to use Best Tax Strategy on Sale - Posted by John Corey

Posted by John Corey on June 15, 2006 at 09:01:32:

M Lee,

As Jimmy has highlighted you need to understand the potential taxes that would be due. Until you know that do not worry about strategies.

The long term capital gains rate is 15%. The recapture rate is 20% or 25% (some know and care to comment). It might be that paying the tax is minor in the bigger picture.

If your grandmother has a large estate or other assets that she wants transferred to someone specific it is time for some estate planning. You need a competent tax attorney. If the estate is small it will not be worth the effort.

Do note that one step (creating a living trust) could be smart even for a smaller estate so you can avoid probate. A will is OK and for tiny estates can largely avoid probate if there is little real property.

So, until you know what might be taxed and how much I would not worry much.

If she just wants to sell one building and is open to buying another rental she can do a 1031 and transfer the tax basis in this property to the next.

See for more information on 1031 exchanges.

John Corey

How Long Will She Live??? - Posted by Jimmy

Posted by Jimmy on June 15, 2006 at 07:42:24:

First, understand the rules. Granny’s basis in the house was its FMV on the date of death of the person from whom she inherited it. Go back and figure out what that number is. Then add any capital improvements she made to the property while she held it (not stuff she wrote off as deductions). Subtract the depreciation she has taken. Now you have her adjusted basis. If she sells for more than her basis, she will have capital gain. some of the capital gain may actually be depreciation recapture, if she took accelerated depreciation. ask your tax guy.

Second. If Granny is herself getting close to the end of her useful life (that’s a depreciation joke), and if there is a significant gain, she should NOT transfer it now. If she leaves it to you at her death, you get a new “stepped-up” basis, and the capital gain and depreciation recapture stuff is erased.