Q: My mother is in the process of selling more than 100 acres of mountain land, which will bring in approximately $400,000. My mother will get only half of this (there is another owner of the property) and I’m sure her share will be less after closing costs and the agent’s commission.
My mother is 75 years old. How much will she have to pay in capital gains tax and are there income taxes due on top of that?
A: Congratulations on this windfall. Your mother should make sure she hires an attorney to walk her through this process, so she understands where all of the cash is going.
Let’s take a look at what she might owe. Assuming she owns the property mortgage-free, her share will be approximately $200,000. If she pays a 5 percent commission, and 2 percent in other taxes and costs, that’s $14,000. She’ll have $186,000 left.
Assuming she has owned the land for more than a year, she will pay capital gains tax of up to 15 percent, or $27,900, leaving her with $158,100. Then, depending on where she lives, she may owe state income taxes on that gain.
There should be no other taxes due on the sale, unless she took depreciation on whatever buildings were on the land. But please be aware that while this is a capital gain, it may affect the amount of income tax she’ll pay. Depending on your mother’s income tax bracket there may be some other tax issues, so please talk to your accountant or tax preparer for more details.
June 4, 2007.