Selling property tax question

[Anonymous]

Hi everyone,

I have a tax question on real estate. I have taken depreciation on my house for the past years (like ~17 or so) and have decided to sell it to my son last year. If it was sold at a $1 to him. What are the tax implications? Do I have to pay like ~$200k to the government because I took the depreciation benefit over the years? The house is only worth $500k in its value. I don't even have that money to give to the government since I only sold it at $1.

[Anonymous]

Yes, you owe the IRS a gift tax and possibly capital gains on $499,000. You Gould have consulted a tax attorney, and now, an accountant.

[Anonymous]

The lawyer never told me any of this before he did all the work. Now that it is done, is there a way around this? I live him still and plan to live here for the rest of my life. Does that mean I still need to pay the tax? And what is a gift tax?

[Anonymous]

Yes. We sold ours a couple years ago after renting for several years when w were overseas and had to recapture our depreciation. It sucked. As i read the reg, you had to recapture depreciation if you could have taken it, whether you did or not. I'm glad we at least had taken the depreciation.

[Anonymous]

So how much of a percentage do we have to give back? For example, if the house is worth $500k and it was sold at $1, what is the owed amount? If I make an agreement that I will be a living estate, does that help?

[Anonymous]

Anonymous wrote:Hi everyone,

I have a tax question on real estate. I have taken depreciation on my house for the past years (like ~17 or so) and have decided to sell it to my son last year. If it was sold at a $1 to him. What are the tax implications? Do I have to pay like ~$200k to the government because I took the depreciation benefit over the years? The house is only worth $500k in its value. I don't even have that money to give to the government since I only sold it at $1.

There will not be any gift tax.

[Anonymous]

Since I sold it to him at $1 and had taken depreciation the past 17 years. So at the end, do I need to pay any tax on anything?

[Anonymous]

You need to consult a CPA pronto. This is not a situation that the average reader here can advise you. I sold my house in 2012 and I also had been taking depreciation. I talked to my CPA before I sold to make sure I did it correctly, and also talked to her again as I did my taxes last month to make sure I filed correctly. Not simple, get to a CPA immediately.

[Anonymous]

You also have depreciation recapture tax

[Anonymous]

I also think you need to consult a CPA and/or a lawyer about this to address the depreciation issue and the sell for less than market value issue. You especially should talk to one or both since you still plan to live in the house - that can actually make the whole situation even more complicated.

[Anonymous]

There are kinds of tax implications in this transaction.

No gift tax will be owed, but you will have to file a gift tax return disclosing the value of the gift.

You will have calculate the value of the depreciation and pay a 25% recapture tax on it yourself.

Selling the home for an artificially low price, if it's even allowed, may also expose you to a capital gains tax on the home. If you are single, the exclusion is only $250,000, and if you're not vacating the home, it could look very much like an artificial transaction.

More importantly, you are kind of screwing your son from a tax standpoint down the road. Not only would his tax basis be artificially low, he'd be better off inheriting property than being given it.

[Anonymous]

There's no point in selling for $1 - you may as well just gift it to your son and then no gift tax or income tax is owed - he would take over all of the tax attributes of the property that you had (depreciation to be recaptured later when he sells it).

or, just hold onto it until death, and then your son gets the property free and clear of the recpature.

[Anonymous]

Anonymous wrote:There are kinds of tax implications in this transaction.

No gift tax will be owed, but you will have to file a gift tax return disclosing the value of the gift.

You will have calculate the value of the depreciation and pay a 25% recapture tax on it yourself.

Selling the home for an artificially low price, if it's even allowed, may also expose you to a capital gains tax on the home. If you are single, the exclusion is only $250,000, and if you're not vacating the home, it could look very much like an artificial transaction.

More importantly, you are kind of screwing your son from a tax standpoint down the road. Not only would his tax basis be artificially low, he'd be better off inheriting property than being given it.

The lawyer told me that it's fine to sell at $1 which is why I did the transaction. It's me and my husband, so I guess the exclusion can be $500,000? Yes, we're not vacating the home and the lawyer said that it would be fine. He screwed us over then. That's why I am asking for opinions because maybe you can shed light on it somehow. So the recapture tax is 25% flat on the fair market value of the house, which is $500 *25% = $125k that I will owe. Can this transaction be nullified and cancelled since I am not vacating the home? Like a reversal since you mentioned that this look like an artificial transaction.

[Anonymous]

You need a good CPA and a new lawyer. Pronto. You may be royally screwed on depreciation recapture. But you may be able to work through an estate plan that will minimize current impact.

And your son is screwed too. Would suggest he find a good CPA and lawyer too.

[Anonymous]

Anonymous wrote:You need a good CPA and a new lawyer. Pronto. You may be royally screwed on depreciation recapture. But you may be able to work through an estate plan that will minimize current impact.

And your son is screwed too. Would suggest he find a good CPA and lawyer too.

I am still trying find good ones, but I know very little about who's good and not. That lawyer was actually recommended, but now after all this, it did nothing but ruin me. I have no money so all I can think of is declare bankruptcy or something. Not only that but yes, I ruin his life and now he has to carry so much debt because of us. Is it possible to pay in installments until the end of my life?