Dianne Stow
Video Ad
Real-estate

6/8/2007

Capital gains tax may gobble up some potential earnings

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 Iím sure her share will be less after closing costs and the agentís 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 the cash is going.

Letís 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, thatís $14,000. Sheíll 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 sheíll pay. Depending on your motherís income tax bracket there may be some other tax issues, so please talk to your accountant or tax preparer for more details.

Q: Twenty-four years ago, my then-boyfriend, who is currently my husband, and I bought a home. Weíve been married for 17 years and, while weíve never had any children together, he has two children from a previous marriage.

When we bought the property, I believe we bought it as ďjoint tenants with rights of survivorship.Ē In case he dies, Iím just wondering if his children can fight for anything he owns with me. He was only married to his ex-wife for 5 or 6 years. Thank you kindly in advance for any advice you can give.

A: If you own your home as joint tenants with rights of survivorship, and he precedes you in death, you would become owner of his half of the house automatically.

Do you have a will? Does he? Iím guessing that you donít, but not having a will isnít smart. The rest of his assets, like bank accounts, life insurance policies and retirement accounts (unless youíre named as the beneficiary), as well as his other belongings (like a car, clothing or furniture) will be divided according to state law ó his children will likely get half and youíll get half.

You and your husband should have a discussion about your assets and get basic wills prepared so you donít have to worry about this.

Q: My parents had a house they held as tenants by the entirety. A clause in the deed states, ďTo have and to hold the premises hereby granted upon the Grantees as Tenants by the Entirety (and not as tenants in common), their and the survivor of them, heirs and assigns, in Fee Simple, forever.Ē

My mother passed away in 1984. I want to know what benefits or rights, if any, I will receive by being her only child, if my father wants to sell the house or anything. All your help is greatly appreciated.

A: Probably none. Tenancy by the entirety means that your father inherited your motherís share of the property when she passed away. Itís like being joint tenants with rights of survivorship. The house is your fatherís to keep or to sell.

For more details, please consult a local real estate attorney.

Ilyce R. Glinkís latest book is ď100 Questions Every First-Time Home Buyer Should Ask, 3rd Ed.Ē (Three Rivers Press, $18). If you have questions, you can call her radio show at (800) 972-8255 any Sunday, from 11 a.m. to 12 p.m. EST. You can also write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022, or visit www.thinkglink.com.