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Mother Making Big Profit |
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my mother wants to sell her house in california and relocate to washington. She owns her home and will profit more than 500k. she is concerned with paying capital gains.she has lived in the house for over 10yrs. and is wondering if there's any way to avoid the capital gains tax (ie. 10/31 exchange?) |
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A 1031 exchange doesn't avoid capital gains tax, it just postpones it, and anyhow, it's used for investment property, not a personal residence.
Your mother can take the first $250,000 of her profit free of any federal capital gains tax, using the homesellers exclusion. But first you must figure her gain properly. If, for example, she inherited any part of the ownership when your father died, her cost basis went up at that point. In any event, her cost basis is more than just her original purchase price. It includes anything she spent on permanent improvements over the years (not repairs or redecorating, but items as big as a new roof and as small as a towel bar.) It also includes some of her legal expenses both when buying and when selling, real estate commissions and the like. All of that is subtracted from her sale price to arrive at the gain. She needs a professional's help with her tax return for the year in which she sells. |
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Edith
Originally published on April 10, 2008 |
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