Tax guy

[Ruzious]

Taxes are my field. If someone has any questions, hopefully I can help.

[blueguy]

I own an old rowhouse (paid in full) in Baltimore that my parents gave me. How do I estimate the taxes (state/FED), if I sold it for $75,000 (minus all closing costs)?

[TGO]

I own an old rowhouse (paid in full) in Baltimore that my parents gave me. How do I estimate the taxes (state/FED), if I sold it for $75,000 (minus all closing costs)?

Just to be clear, you're talking about tax on the gains, correct, not transfer taxes?

If so, I think you need to figure out the adjusted basis, but I guess I should let Ruzious answer.

[Miller192]

I own an old rowhouse (paid in full) in Baltimore that my parents gave me. How do I estimate the taxes (state/FED), if I sold it for $75,000 (minus all closing costs)?

Again not my specialty but if you've owned for more than two years than I believe you would be exempt from capital gains.

Ruzious?? Or is it just 15 months?

[CrimsonTribe]

Just to be clear, you're talking about tax on the gains, correct, not transfer taxes?

If so, I think you need to figure out the adjusted basis, but I guess I should let Ruzious answer.

That's what it appears from his question. He needs to figure out his adjusted basis, which was probably inherited from his parents when they gifted him the property. Knowing his adjusted gross income and how long he/his parents (again, he probably inherits their holding period) owned the house would also be beneficial to figure out which tax rate he falls into. Then, of course, there's the state income tax (if Maryland has one; I know nothing of Maryland law).


Again not my specialty but if you've owned for more than two years than I believe you would be exempt from capital gains.

Ruzious?? Or is it just 15 months?

Generally you're going to get the beneficial capital gains rates if you've held the property for one year. And you're not exempt from capital gains, you get a beneficial income tax rate for long term capital gains on the sale of a capital asset. That is, unless there is some exception for old rowhouses in Baltimore (and I don't mean this sarcastically).

I should mention that I'm also a tax guy.

[allstar1579]

Again not my specialty but if you've owned for more than two years than I believe you would be exempt from capital gains.

Ruzious?? Or is it just 15 months?

You have to live in the property for 2 out of 5 years as your primary residence in order to not pay capital gains taxes on the profit.

[blueguy]

Thanks for the feedback. To add more details.

1) When my parents purchased the rowhouse, they put the title under my name. It has been in my name for over 8yrs since the original purchase.

2) I did not spend a penny on the purchase.

3) My primary home is in Virginia, I guess this rowhouse would be considered an investment?

Not putting any money on the rowhouse for the orginal purchase, how much would I get
taxed if for example:

The rowhouse sold for $85,000. After closing costs and taxes, I pocketed $75,000.

Concerned about getting taxed heavily?

[Miller192]

That's what it appears from his question. He needs to figure out his adjusted basis, which was probably inherited from his parents when they gifted him the property. Knowing his adjusted gross income and how long he/his parents (again, he probably inherits their holding period) owned the house would also be beneficial to figure out which tax rate he falls into. Then, of course, there's the state income tax (if Maryland has one; I know nothing of Maryland law).



Generally you're going to get the beneficial capital gains rates if you've held the property for one year. And you're not exempt from capital gains, you get a beneficial income tax rate for long term capital gains on the sale of a capital asset. That is, unless there is some exception for old rowhouses in Baltimore (and I don't mean this sarcastically).

I should mention that I'm also a tax guy.

See, I thought personal residences were treated differently....but you're the tax guy...thanks!

[CrimsonTribe]

You have to live in the property for 2 out of 5 years as your primary residence in order to not pay capital gains taxes on the profit.


See, I thought personal residences were treated differently....but you're the tax guy...thanks!

Sorry, you're right, there are different rules for personal residences. I, for some reason, assumed that it was just an investment property. Apparently, my unfounded assumption was right.

Anyway, I'm not really a personal tax guy. The tax work I do is mainly in the corporate and estate planning areas.

[allstar1579]

Sorry, you're right, there are different rules for personal residences. I, for some reason, assumed that it was just an investment property. Apparently, my unfounded assumption was right.

Anyway, I'm not really a personal tax guy. The tax work I do is mainly in the corporate and estate planning areas.

It's cool, it's funny how different things are from personal to corporate and estate tax worlds. Even then, they change the rules every 3 or 4 years anyway, so everything we think we know changes just so they can make more money on CPE credit :)

[CrimsonTribe]

It's cool, it's funny how different things are from personal to corporate and estate tax worlds. Even then, they change the rules every 3 or 4 years anyway, so everything we think we know changes just so they can make more money on CPE credit :)

It really is amazing. I got my LL.M in Taxation in May and going into it I thought I was going to come out knowing a good deal of tax law. I learned a whole lot, but in the end I was really just set up to be able to research/learn tax issues and law changes quicker when they come up. I'd say that 90% of the time when I'm asked a tax question I won't know the answer off the top of my head. And that is probably being generous. It also doesn't help that my only practical experience dates back to July 2008.

[GotNitro]

Taxes are my field. If someone has any questions, hopefully I can help.

Was the 2008 stimulus check an advance or should it not effect my taxes at all? My current tax guy says I would have had a $594 refund, but when he puts the stimulus check in, I now owe $606. My wife called a different tax office and they said that the stimulus should not have any efect on our taxes and should not make this happen. Mind sharing your thoughts?

[Ruzious]

Sorry guys. I hadn't checked this thread until now. Good answers by Crimson. blueguy, your gain is the 75,000 less your cost basis. As was said, since you received the rowhouse via gift, your cost basis carries over from what it was in your parents' hands - which would likely be what they paid for it. If you have the Settlement Sheet from the purchase, that should tell you their cost. Was it used as a rental property? If so, were you depreciating the property over the years? If so, that depreciation decreased the basis of the property. And yes, you are entitled to the low long-term capital rates. If you did take depreciation expense over the years, some of the gain may be taxed at a higher rate.

[Ruzious]

Was the 2008 stimulus check an advance or should it not effect my taxes at all? My current tax guy says I would have had a $594 refund, but when he puts the stimulus check in, I now owe $606. My wife called a different tax office and they said that the stimulus should not have any efect on our taxes and should not make this happen. Mind sharing your thoughts?
It's very confusing. See the IRS' website for a better explanation than I'll give. http://www.irs.gov/newsroom/article/0,,id=203191,00.html?portlet=7

Basically, there were 2 parts to the puzzle. The first was the Economic Stimulus checks people got in 2008. Those checks were based on 2007 1040's. Second is the Economic Rebate Credit on the 2008 1040. Generally speaking, if you got the 1st, you're not going to get the second. But... you don't have to pay anything back if you recalc the credit on your 2008 1040 and it's less than the check you got last year. You simply have -0- credit on your 2008 1040.

[Bosibus]

Figured my previous question out.

Anyways, I have another question.

I purchased a home in November of 2008. I paid $700 in points in order to bring down my mortgage rate, is this considered a deduction?

I only paid one mortgage payment in 2008 and points, I think it would be better for me to do the standard deduction, correct?

[frankpembleton]

I have a question similar to Bosibus.

I bought a place in August of 2007. I paid an extra $6,000 to buy down the mortgage rate with points. I am pretty sure all of that money was deductible. However, I was under the impression at the time that I could not deduct the entire amount at once and that it was a prorated amount over a certain period of time. The tax forms I got from my bank at the end of 2007 led me believe this was true.

When I got my tax forms this year, it said my deductible amount for points was 0. I was assuming it would be another prorated portion of the $6,000. After some more research, it seems to me I should have deducted all of the money I paid for points for the 2007 tax year.

Is that true? If so, is it worth my while to file an ammended return for 2007? Thanks for anyone who can give me advice.

[TGO]

This is from IRS Pub 530:


(Read past the "general rule" - like many IRS rules, the exception almost entirely kills the rule)

General rule. You cannot deduct the full amount of points in the year paid. They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage.

Exception. You can deduct the full amount of points in the year paid if you meet all the following tests.

1. Your loan is secured by your main home. (Generally, your main home is the one you live in most of the time.)

2. Paying points is an established business practice in the area where the loan was made.

3. The points paid were not more than the points generally charged in that area.

4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.

5. The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.

6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker.

7. You use your loan to buy or build your main home.

8. The points were computed as a percentage of the principal amount of the mortgage.

9. The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.


Note.
If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions.

http://www.irs.gov/publications/p530/ar02.html#en_US_publink100011857

[frankpembleton]

This is from IRS Pub 530:


(Read past the "general rule" - like many IRS rules, the exception almost entirely kills the rule)


http://www.irs.gov/publications/p530/ar02.html#en_US_publink100011857

Thanks for that.

That leads me to believe that I could have deducted the full amount of points paid.

Has anyone filed an ammended return? Is it worth it to do it? I feel like taking another $6000 deduction is something that would probably give me a pretty decent amount of money. Is this something I can even do, or am I screwed for missing out on it in the intial go-round?

[Ruzious]

I have a question similar to Bosibus.

I bought a place in August of 2007. I paid an extra $6,000 to buy down the mortgage rate with points. I am pretty sure all of that money was deductible. However, I was under the impression at the time that I could not deduct the entire amount at once and that it was a prorated amount over a certain period of time. The tax forms I got from my bank at the end of 2007 led me believe this was true.

When I got my tax forms this year, it said my deductible amount for points was 0. I was assuming it would be another prorated portion of the $6,000. After some more research, it seems to me I should have deducted all of the money I paid for points for the 2007 tax year.

Is that true? If so, is it worth my while to file an ammended return for 2007? Thanks for anyone who can give me advice.
Yes, file amended returns - Form 1040X for federal and 502X for Maryland.

Btw, great username - my favorite character on my all-time favorite series.