[jadesmom]

I have two parcels of property, each with a home on it, that were deeded to me by my late father prior to his death. One is owned free and clear, the other has a home equity loan on it. Neither is my primary residence. If I sell one or both, what type of capital gains taxes am I going to incur? And, does paying off the equity loan have any impact on the amount of capital gains I am subject to?

The property was Quit Claimed to me for an inconsequential amount (around $5).

Thanks for any advice provided.

[ebaines]

These properties were gifts to you by your late father. Consequently your cost basis in them is equal to his adjusted cost basis, which would be his original cost basis plus costs of capital improvements he made while he owned the property. However, if that amount is greater than the fair market value as of the date of the gift, you cost basis is the FMV. When you sell, you will likely owe capital gains on the difference between your sales price and your adjusted cost basis. You report thos gain on Schedule D. If you have a loss - well, you can't take a loss on personal property. And if this is investment property - in that case you probably should be soliciting the advice of a paid professional to help figure your tax consequences.

Paying off the equity loan has no bearing on your cost basis.

[jadesmom]

Thank you. Yes, one of them is technically an investment property - it was my grandmother's home which my father inherited when she died and then he turned it into a rental property. The other one was his primary residence and is now my brother's primary residence, but I am the deed holder. You're probably correct that I should consult a tax adviser and I will. Just thought I would try to get a feel for the best case scenario from others who may have had similar experiences.

I guess one thing I'm really trying to figure out is whether there will be any net gain for me if I sell the property with the home equity loan on it (which is not the investment property). If the loan is $65,000 and I sell the house for $90,000, will the capital gains taxes eat up the remainder of the proceeds after the loan is paid? Clearly, I'm a novice when it comes to this kind of stuff. Thanks again for your help.

[AtlantaTaxExpert]

The loan amount has NOTHING to do with the capital gain tax calculation.

It MAY affect your actual after-sale-and-loan-settlement gain, but the tax calculation will not factor in any part of the loan.