Tax Angle On Selling Second Home
REM #F741
By Ilyce R. Glink
Summary: A ThinkGlink reader bought his mother's home for $1 and sold it less than a year later. Ilyce explains where he went wrong on this deal.
Q: I read your recent column in the Columbus Dispatch regarding the tax implications
of a person selling a home that was not a primary home.
In your reply regarding the sale of a second home, you started the 4th paragraph with "If you've owned the second property for at least a year..." Can you expand on the "at least a year" part?
My brothers and I bought my mother's home for a dollar and then sold it several months later. Thus we owned it for "less than a year." Are there some special rules dealing with amount of time you’ve owned a home?
Your column is great. Thanks for all of the help.
A: How long you’ve owned property before you sell is a question that the IRS wants to know. It’s primarily a tax question because how long you own your home relates specifically to how much tax you’ll pay, if any, on the profits you earn when you sell.
According to the IRS, if you own a home for less than a year and then you sell it, the profits are considered to be ordinary income. So, you’d pay tax on the profits of up to 35 percent plus state tax.
If you own the property for at least 12 months, you would pay capital gains
tax at rates of up to 15 percent, plus state tax.
If you buy your Mother's home for $1, and sell it for $100,000 two months later,
you'll owe tax as if you've earned $100,000 in a job. You'll probably pay 33
to 35 percent federal tax plus state tax.
If you waited a year, you'd only pay 15 percent tax plus state tax. It's a big
difference.
But here's the kicker – if your mom kept her house, later upon her death,
you would inherit your mom's house at the value at that time, if you were to
immediately sell it, you wouldn't have to pay any tax on the sale.
For more details, please see your accountant or tax preparer.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
Quit Claim Deed Transfers Property Taxes
Quit-Claim Deed Question
Deed in Lieu of Foreclosure Will Hurt Credit Rating
Buying Home On Brink Of Foreclosure
Selling Home in Flood Plain
Link to This Article
Like what you've read? Spread the word! You can link to this article
from your website by copying the following code and adding it to
a page on your website:
Copyright ©2001-2007. ThinkGlink, Inc.
All rights reserved. Reproduction of material from any www.ThinkGlink.com pages without permission is strictly prohibited.
Site designed by Walker Sands Communications
