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home sale profits

Q&A: When an inherited house gets sold, it pays to know the tax rules

June 17, 2024 By Liz Weston

Dear Liz: My sister and I inherited a house from our mom in 2003. Back then, it was appraised at close to $500,000. It’s now worth $1.3 million and we want to sell and split the profits. My sister has lived in the house since Mom passed. Approximately what would the tax liability be?

Answer: You’ll determine the potentially taxable profit by subtracting the tax basis — the amount the house was appraised for at your mother’s death, plus any qualifying improvements — from the sale proceeds. Your sister can exempt $250,000 of her share of the profits, since she has owned and lived in the house for two of the previous five years. If her share of the profit was $400,000, for example, she would owe long-term capital gains taxes on $150,000 of that.

As a non-occupant, you wouldn’t have the option to exempt any of the profit, so you would owe long-term capital gains taxes on your entire $400,000 share. Long-term capital gains rates depend on your income, but the federal rate is 15% for most.

Filed Under: Estate planning, Home Sale Tax, Inheritance, Q&A, Real Estate, Taxes Tagged With: capital gains, capital gains tax, home sale, home sale exclusion, home sale profits, home sale tax, Inheritance, Taxes

Q&A: Credit for time spent on a DIY home project?

May 6, 2024 By Liz Weston

Dear Liz: My husband remodeled all of the bathrooms in our home. We have receipts for the materials we purchased so that we can reduce our capital gains when we sell our home. Can we claim my husband’s time as labor costs for the home improvements?

Answer: No.

You can add the cost of improvements to your tax basis, which will be deducted from the sale amount to determine your potentially taxable capital gains. But you can’t add to your tax basis the value of your own labor, or any labor for which you didn’t pay.

Filed Under: Q&A, Taxes Tagged With: capital gains taxes, home improvement costs, home improvements, home sale, home sale profits, Taxes

How to reduce taxes when you sell your home

May 17, 2022 By Liz Weston

If your home’s value has soared, congratulations. If you decide to sell, beware.

Financial advisor James Guarino says some clients don’t realize that home sale profits are potentially taxable until their returns are prepared — and by that time, they may have spent the windfall or invested the money in another house.

”They’re not happy campers when they find out that Uncle Sam not only is going to tax this as a capital gain, but they’re also going to have some exposure at the state level,” says Guarino, a certified public accountant and certified financial planner in Woburn, Massachusetts.

In my latest for the Associated Press, understanding how home sale profits are calculated and how you can legally reduce your tax bill.

Filed Under: Liz's Blog Tagged With: home sale profits, Taxes

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