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    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #1

    Jun 15, 2008, 03:15 PM
    How do I deal with small capital gains & Schedule D?
    Asking you accountant-types at your help desks, :)

    My wife inherited, along with one sibling, one-half share in her mom's home. I have done some reading online, but I'd like to hear from some of you how to deal with this new area for me. I'm a do-it-myself tax preparer, but Schedule C and SE are about as complicated as I've been in the past.

    I hear about "basis" which I understand is considered to be the value of the home at the time of the death. I guess basis is subtracted from selling price with half the balance being taxable income to my wife since there's a 50-50 split with the sibling. The two of them sold for $25,000.00, and the value at time of death was considered just a few thousand less than that.

    Am I somewhere in the park?

    Thanks.
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Jun 15, 2008, 06:08 PM
    So let's say the house was worth 23,000 at the time of your wife's mother's death.

    You sold it for 25,000.

    Therefore, there is a capital gain of 2,000. Capital gains are taxed at 50%, so the taxable capital gain (the portion you pay tax on is 1,000).

    Now, since you said only 50% of this is hers, all numbers would be cut in half, so her TCG would be 500 (unless 25,000 was just her share)

    Whoever is the executor of your wife's mothers estate, would have had to file taxes on behalf of the estate. How much did they value the house at, at the time of the death?
    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #3

    Jun 15, 2008, 07:45 PM
    Apparently they are showing the house worth 20,000 at the time of death and selling price of 25,000. I have figures of 12,500 less 10,000 = 2,500. I am guessing they are showing capital gains of 5,000 total or 2,500 each. Now, I understand you to be saying that on Schedule D, amount to be taxed will be one-half capital gains, or 1,250, and that is the amount to be entered on Form 1040 to be included as taxable income.

    Am I on track? Thank you very, very much.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Jun 16, 2008, 01:59 AM
    Hold on. I just went through this not so long ago when my father died. I don't know that the real question is really about your wife's taxes, but I also am not an expert and you also didn't give enough details.

    I'm going to suggest that you go over to the legal board and ask there. Um... I'd say under Family Law. (?) If the house is still in probate and is still part of the estate, it may be that selling it (even at a gain) is still part of the dealings of the estate. The executor has the right to sell anything they want while it's still part of the estate. If that's the case, the gain would actually be... well, I always got confused over what was "estate" stuff and what was "final taxes of individual" stuff.

    Just because I went through it doesn't mean I'm some expert at it, but we did go through similar things. I think there's some technicalities here about when it was sold, whether it was still part of the estate, whether you've closed probate, maybe whether it's actually already gone into their name as inheritors, possibly whether it was in a trust, etc. etc. This is not really an accounting question at this point -- it's a legal question relating to estates and inheritances. And I think you need to ask a legal person, and give a whole lot more detail about precisely what happened. (In fact, don't you have a lawyer on this?)

    If you know for absolutely sure, or discover for sure, that this is no longer estate stuff and actually is on your wife now, then it turns back into a tax question for your wife.

    (And a Sch. C and SE have nothing to do with it. That's for self-employment.)
    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #5

    Jun 16, 2008, 09:33 AM
    Thanks to those of you who are trying to be helpful.

    To my knowledge (and my wife and her sibling are away this week), there is no will, no probate, no executor, and no lawyer. Our son is a lawyer, and my wife may have spoken with him.

    There were only two adult children and they are the only ones who claim any interest in the "estate." They met at the home and divided personal property. They have a great relationship and worked together fantastically on the matter.

    They sold the house after about two years following the death. They shared expenses of maintenance and utilities that were left connected in the interim period. They split proceeds from the sale right down the middle with neither ever having any complaints with the other about how personal property was divided or how the business related to the sale of the house was handled. Both the sibling and my wife were involved in the business aspects of the sale--advertising and talking with prospective buyers.

    We do our own tax returns, but we have never had the issue of inheritance or real property or capital gains before. My previous reference to Sch C and SE had to do with the fact that I have done those before, but that those items are about as complicated as I have ever had to deal with before (a reference to now "moving up" to the more complicated [for me] matter of captital gains). For many years, I have had self-employment to report on Sch C and social security income to report on Sch SE.

    If there is other helpful info out there on this matter, please feel free to send it over!

    While you're thinking this through...
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #6

    Jun 16, 2008, 02:41 PM
    To my knowledge (and my wife and her sibling are away this week), there is no will, no probate, no executor, and no lawyer. Our son is a lawyer, and my wife may have spoken with him.
    Odd. Likely your son did some things you don't know about. You might ask your son about that, how he took care of it, and just make sure that everything went through properly as it should. I would hope, since he's a lawyer, that it all got taken care of. But first, being a lawyer doesn't mean his expertise is in this area. And second, I'm just the kind of person who likes to know what's going on and likes to check and make sure everything's okey dokey. I get paranoid when I don't know something for sure. I guess I shouldn't try to make you be like that. ;)

    They sold the house after about two years following the death.
    Well, assuming there are no leftover legal details, after two years it certainly shouldn't still be part of the estate. That's gone, done and over with. So the info CaptainForest gave you should apply.

    My previous reference to Sch C and SE had to do with the fact that I have done those before, but that those items are about as complicated as I have ever had to deal with before (a reference to now "moving up" to the more complicated [for me] matter of captital gains).
    Ah, gotcha. Actually, neither is more complicated -- it's more a matter of which you're more familiar with and how much detail is involved. I too am more familiar with a Sch. C.

    I'm glad their stuff went so well and they were so agreeable and cooperative. I cannot say the same for us. Our executor (which title I think went to his head) made everything a royal pain in the rear. At least there were an odd number of us and he tried to honor "majority rules," but acted like listening to opinions of non-executor heirs was some huge favor, when it was simply the right & ethical thing to do. What a bad memory.
    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #7

    Jun 16, 2008, 03:41 PM
    Thanks to CaptainForest and morgaine300 for your thoughts on my capital gains situation. I do want to confirm, if possible, one very interesting and welcome comment from CaptainForest.

    I understand him to opine that only 50% of the capital gains are taxable. Sooo--if the difference between the selling price and the value at time of death is a total of $5000.00, the two heirs would receive capital gains of $2500.00 each...

    Each heir is taxed on only $1250.00 capital gains, and that is the figure that is entered on Form 1040!

    Either of you two named above and anyone else informed on this matter are welcome to chime in.

    Thanks!
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #8

    Jun 16, 2008, 09:53 PM
    Well, I'm not a tax expert, and my own personal Sch. D stuff is limited to mutual funds. I've always thought capital gains outside of your basic stock/bond kind of stuff was a little hairy. (It doesn't help that a "capital asset" is different between an individual and a business.)

    My memory didn't recall anything about only paying tax on 50%. So I scoured what I could find at the IRS site. I mean, I literally scrolled through every page of Pub. 550. It did mention property gotten as an inheritance and did say the basis is the FMV at the time of death. (Normally a house's basis would be adjusted by certain items, but it actually didn't mention that. Just said FMV at the time of death. But she also would not have had settlement costs, and any differences in property tax would have been on the estate, not her. If all she's done is general maintenance on the house since then, don't worry about it.) I also did not find anything special about houses -- i.e. that it would only be 50% of the gain. From what I can tell, it basically is treated like any other 'capital asset' gain. And in the end, a lot of it depends on whether there's anything else going on that Sch. D. I can tell you it will be long-term gain. It's Pub. 550 if you want to go to IRS.gov and check it out.

    Ask on the tax board under Money & whatever it is. There's at least one tax expert there who doesn't check this board as far as I'm aware. Not all accountants even do taxes (some of them hate it, in fact LOL), and CaptainForest is in Canada, so what he said may apply there, I have no idea. And I'm not totally comfortable with my info. So I'd ask over there:

    https://www.askmehelpdesk.com/taxes/
    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #9

    Jun 17, 2008, 07:00 AM
    Thanks for your research, time, and comments. I'll go to the other source you mentioned.
    IM4U's Avatar
    IM4U Posts: 156, Reputation: 16
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    #10

    Jun 17, 2008, 07:45 AM
    I scanned some topics in the tax section of askmehelpdesk and did not find just what I was looking for.

    Okay, here we go. I finally relented and called an accountant. Got a few minutes of free tips, can you imagine! Hmmm, small town life!

    On an inheritance, capital gains tax is paid on one hundred percent of the difference between FMV at death and selling price.

    Since my wife received half the proceeds of the sale, she will pay capital gains tax on one half the difference between the FMV at time of death (considered to be the "basis") and the selling price two years later.

    AND--no inheritance tax applies due to the value of inheritance being below 2.5 million dollars.

    I could have called an accountant earlier and saved you guys and myself some hassle. But thanks again for engaging the issue with me.

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