Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




Capital Gains confusion/ guidance

Reply to topic
Money Talk > Real Estate

Author Thread
cwachendo
New Member


Cash: $ 0.65

Posts: 3
Joined: 28 May 2017
Location: ND
Capital Gains confusion/ guidance  Reply with quote  

Okay... this is complicated (to me anyway).
My parents bought a large plot of land (8acres), more than they wanted. It was agreed that my parents would hold the loan for the land and we would pay for the loan and when we planned to build a home (three acres and a shop), we would purchase the land for the loan price. However, we have since decided that is not a desireable place to live and we would like to sell the property.

The entire property was purchased 19 months ago for 300k
There is a loan for 60k that we are making payments toward with a balance of 56k. Payments of 490 a month.
The land is valued at 80k and we plan to sell it for 75k. So there will be a profit of around $19k.

So, would my parents be taxed the 15% on the profit of the sale, or since it was their entire plot of land (300k) and they are splitting it off, will it be exempt? Are we better off waiting until 2 years is up to sell it, or are we "safe" to sell now with little fees/fines?
Post Sun May 28, 2017 1:07 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 733.45

Posts: 3566
Joined: 21 May 2006
Location: arizona
 Reply with quote  

The loans have nothing to do with the taxes - other than the fact that you and your parents may be using it as a definition of value. The $490/m that you have been paying is for the use of the money, not for the land.

The longterm tax period is one year or more, to get the 15% rate (shortterm gains would be at you ordinary income tax rates.)
Subtract your cost basis (the cost of 3 acres is 3/8 of $300000, $112,500) from the sales price, that is the profit. And pay 15% of that.

I didn't follow "the $19k profit" ?
No, your parents won't be exempt from the tax. they'll be liable for the tax on the profit (or loss) on the portion sold.

$37,500 per acre? I didn't know land in ND was that pricey - it must be in or close to a city?
Post Sun May 28, 2017 4:32 pm
 View user's profile Send private message
cwachendo
New Member


Cash: $ 0.65

Posts: 3
Joined: 28 May 2017
Location: ND
 Reply with quote  

To me, the monthly payment does matter because of when I can stop paying it, and what my tax will be on the money is worth it.

I was told previously capital gains tax isn't implemented after two years of ownership, so that's where I was coming from there. And we are selling for a 19k profit, which my understanding is capital gains are only taxed on the profit. Is that correct?

Land in central ND is at a premium.
Post Mon May 29, 2017 2:40 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 733.45

Posts: 3566
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
capital gains are only taxed on the profit


True. But you don't have a $19,000 profit. Your cost basis is $112,500, that's what you (or your family paid for 3 acres). The IRS doesn't care about the $56k loan or the interfamily agreement, all they know is that the cost basis for the 8 acres was $300,000.

So if you sell off 3 acres for $75,000, that shows a $37500 loss - ie, you will have a $37,500 write off.

As for the 2-year, I googled and found this -
""In 1921, long-term gains were first given preferential tax treatment. The minimum holding period for this tax break was two years. "" But then they changed it in 1934. Currently, it's 2-years for stocks, land, investments, etc. The IRS tries to discourage (punish) speculation and encourage investing.

Special case: If you sell your home after living in it for 2 years, that gain is tax free, that's a special primary residence exclusion to encourage home ownership.


[/b][/i]
Post Mon May 29, 2017 4:03 pm
 View user's profile Send private message
cwachendo
New Member


Cash: $ 0.65

Posts: 3
Joined: 28 May 2017
Location: ND
 Reply with quote  

Ok, I follow. Thanks that is helpful! Appreciate your feedback!
Post Mon May 29, 2017 4:49 pm
 View user's profile Send private message

Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016