Q: I live in New York City. I inherited my home 20 years ago from my grandmother.
I have lived here since. I need to know if I will pay capital gains when I sell it the property.
I am selling because my neighborhood is changing. Developers and new buyers are purchasing properties and are tearing down old Colonials houses like mine and building multi-family homes.
How can I target these developers so I can make the most of my sale? Should I have a bidding war? Thanks for your help.
A: The house that your grandmother gave you when she died is a primary residence. That’s good news. When you sell it, you will be able to keep up to $250,000 in profits tax free, or up to $500,000 if you’re married. You’ll pay capital gains tax of up to 15 percent plus state tax on any profits above these amounts.
How do you calculate your profits? Using a very basic and simplistic method to estimate what you will have to pay, you have to look at the value of the home when you inherited it, what you put into the home in terms of structural improvements, what it cost you to sell the home and the price you got for the sale of the home.
You inherited the property at its current market value the day your grandmother died. The value at the time of her death plus any major improvements to the home over the years is your cost basis in the home. The difference between the sales price, less your costs of sale and your cost basis would be what you would have to pay taxes on.
As for targeting developers, you can stick a sign in your front lawn, or hire a real estate agent who works with developers to market the property for you. You can even drive around the neighborhood and write down the names of the various development companies that are building there and call them privately to tell them you’ll be putting your property on the market.
If you want to create a bidding war, you’ll need to price your property at or below market value in order to generate maximum interest. You can find out market value by consulting with local real estate agents, using different websites like Zillow.com, Domania.com or HouseValues.com, or checking out the prices for which the lots have sold at your local recorder of deeds office.
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