Why most real estate gifts escape taxes

DEAR BOB: I sold my principal residence to my daughter in2006, using gift equity. The loan officer structured the loan as a $400,000purchase price with a $307,000 mortgage. My question is will I owe taxes on the$93,000? I owned and lived in the house for four years –Perie L.

DEAR PERIE: If the home was your principal residence atleast 24 of the last 60 months before its sale to your daughter, then up to$250,000 of your capital gain is tax-free.

Purchase Bob Bruss reports online.

Although your letter is a bit confusing, it sounds like youreceived the $307,000 mortgage proceeds and gave your daughter a gift of the$93,000 equity. Because that gift amount exceeds the annual $12,000 tax-freegift exemption amount per donor, you must file a federal gift tax return.

But no gift tax will be due if your total nonexempt lifetimegifts are less than $1 million. When you die, your total lifetime nonexemptgifts up to $1 million will be subtracted from your federal estate taxexemption (currently $2 million). For this reason, most real estate gifts arenot taxable. For full details, please consult your tax adviser.


DEAR BOB: My home has been listed for sale over nine monthswithout selling. I’ve dropped the asking price to $36,000 less than I paid ayear ago. My Realtor has done everything she can. But now I can’t afford to paya sales commission and pay off my mortgage. Nor can I afford to stay and paythe mortgage payments. What about those “cash for homes” companies Isee advertising? –Mary McC.

DEAR MARY: It sounds like you bought at the peak of themarket last year. The “cash for homes” companies buy at hugediscounts from market value in return for quick cash sales.

Why are you selling? Unless you absolutely must sell now, Isuggest you wait. Maybe you can rent part or the entire house to help pay themortgage payments.

Even in the best of times, it is difficult to sell a homeand come out even, after paying sales expenses, until after at least three tofive years of ownership.


DEAR BOB: We plan to sell our house in 2007. I seem toremember that home fix-up costs prior to a sale are deductible from the saleprice for tax purposes. Does this deduction still exist, and what timing orother conditions apply? –Richard B.

DEAR RICHARD: In 1997, Congress abolished that taxsubtraction (not a deduction) for home fix-up expenses incurred shortly beforesale.

However, if you make significant home capital improvements,the cost can be added to your home’s adjusted cost basis to reduce your capitalgain upon sale. Your tax adviser can provide full details.

The new Robert Bruss special report, “How to BuyFixer-Upper Houses with Little or No Cash for Fun and Fortune,” is nowavailable for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or bycredit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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