Author Topic: Tax implications of house sale?  (Read 380 times)

Fig

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Tax implications of house sale?
« on: August 11, 2017, 02:38:41 PM »
I'd appreciate some advice on selling a house in the US. There are a couple of complications and I've no knowledge in this area.

We don't live in the US but my husband inherited his mom's rental house there a couple of years ago. Since the original tenants moved on, we've rented it to his sister at a cheap rate.

We'd like to sell the house at a low price to her fiance so they could live there. No facepunches please - we want to help them out... and never deal with this property again.

However, I have many concerns about incurring the wrath of the IRS and I'd appreciate advice:

- No inheritance tax was owed but are there any tax implications from selling the house on a couple of years later? I doubt the value will have increased much.

- Are there tax implications from selling a house to a (sort of) relative at less than half its value?

- What are the tax implications of selling a rental property?

- How quickly can a straightforward house sale go through in the US? Owning this property is causing problems with buying our own home.

- Are there any other issues I haven't thought of?

Thanks :)
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dleavitt

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Re: Tax implications of house sale?
« Reply #1 on: August 11, 2017, 03:31:15 PM »
I'd appreciate some advice on selling a house in the US. There are a couple of complications and I've no knowledge in this area.

We don't live in the US but my husband inherited his mom's rental house there a couple of years ago. Since the original tenants moved on, we've rented it to his sister at a cheap rate.

We'd like to sell the house at a low price to her fiance so they could live there. No facepunches please - we want to help them out... and never deal with this property again.

However, I have many concerns about incurring the wrath of the IRS and I'd appreciate advice:

- No inheritance tax was owed but are there any tax implications from selling the house on a couple of years later? I doubt the value will have increased much. When you inherited the property you would have received a step-up in basis to whatever the FMV was at DOD or 6 months after DOD.  This was elected by the estate.  While a rental you are taking depreciation expense on the property, which reduces this basis (and increases your gain)

- Are there tax implications from selling a house to a (sort of) relative at less than half its value? Not positive,
 but I believe the fiance would be considered a related party, therefore the difference between what you make them pay and FMV at date of sale is a deemed gift.  On your return you report the FMV as the sales price.  Depending on the the amount of the difference you may have gift tax issues and be required to file a gift tax return.


- What are the tax implications of selling a rental property? Depreciation recapture is ordinary income, rather than capital gains.  Otherwise no different than selling any other investment asset.

- How quickly can a straightforward house sale go through in the US? Owning this property is causing problems with buying our own home.  Biggest holdup would be financing on the buyer's end.  A couple weeks to months.

- Are there any other issues I haven't thought of? Don't know your location, but I get the impression that you are not in the US.  Depending on local laws you may have other reporting requirements for the sale and/or repatriation of funds.

Thanks :)

Fig

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Re: Tax implications of house sale?
« Reply #2 on: August 12, 2017, 01:52:49 AM »
This is helpful, thank you. Re selling a house at a discount - could we use the lifetime gift tax exemption? The difference between the sale price and FMV would be about $75,000.

Depreciation recapture is not something I'd ever heard of, so I'll look into this. We are extremely reluctant landlords and only accepted the house for difficult family reasons. I think I'll need to ask more questions on this in due course.

Thankfully, the UK tax implications seem less complicated.
“Tell me, what is it you plan to do
with your one wild and precious life?”
― Mary Oliver

http://forum.mrmoneymustache.com/journals/getting-my-act-together/