Chapter 7 and tax refunds

[Anonymous]

A relative is filling chapter 7. He receives a tax refund every year. This year, he can't keep it right? I ask because it is likely that he and my children will inherit a house in the next couple months. There's already a likelihood the home will have to be sold due to his legal/financial woes. I'd like him to pay out of his refund first before the house must be sold to satisfy his debts. He says he will keep the refund because the law says it is exempt.

[Anonymous]

He will get the refund unless he owes the irs.

[Anonymous]

Anonymous wrote:He will get the refund unless he owes the irs.

Thanks.

[Anonymous]

Anonymous wrote:A relative is filling chapter 7. He receives a tax refund every year. This year, he can't keep it right? I ask because it is likely that he and my children will inherit a house in the next couple months. There's already a likelihood the home will have to be sold due to his legal/financial woes. I'd like him to pay out of his refund first before the house must be sold to satisfy his debts. He says he will keep the refund because the law says it is exempt.

I think you need more advice than this. A persons home can usually not be taken in bankruptcy.

[Anonymous]

Anonymous wrote:

Anonymous wrote:A relative is filling chapter 7. He receives a tax refund every year. This year, he can't keep it right? I ask because it is likely that he and my children will inherit a house in the next couple months. There's already a likelihood the home will have to be sold due to his legal/financial woes. I'd like him to pay out of his refund first before the house must be sold to satisfy his debts. He says he will keep the refund because the law says it is exempt.

I think you need more advice than this. A persons home can usually not be taken in bankruptcy.

Thanks. It is not his home (residence). The home belongs to my great aunt who is dying. My cousin, two other adults, and my minor children are heirs. I agree about needing more advice, but I am a divorced mom and trying to avoid the expense of a lawyer to defend my children's interests until absolutely necessary. I'm also hoping he finishes the bankruptcy process before our aunt dies so that the house isn't even at issue.

[Anonymous]

Can your kids buy him out of the house?

[Anonymous]

Anonymous wrote:Can your kids buy him out of the house?

No, none of the 5 heirs can afford to buy anyone else out. No one wants to actually live in the home either. The current thought is to rent it and divvy up the rental income.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Can your kids buy him out of the house?

No, none of the 5 heirs can afford to buy anyone else out. No one wants to actually live in the home either. The current thought is to rent it and divvy up the rental income.

Why would that be the current thought instead of the heirs selling it and splitting the proceeds?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can your kids buy him out of the house?

No, none of the 5 heirs can afford to buy anyone else out. No one wants to actually live in the home either. The current thought is to rent it and divvy up the rental income.

Why would that be the current thought instead of the heirs selling it and splitting the proceeds?

Tax liability. And sentimental attachment to the home which my great-grandfather bought. He was a Pullman porter so it was kinda a big deal that he bought this property (initially there was more land and buildings. This is the remnant.)

[Anonymous]

If the heirs inherit the property there should not be any tax issues because the value of the property will be stepped up to the value at the date of death.

[Anonymous]

Anonymous wrote:If the heirs inherit the property there should not be any tax issues because the value of the property will be stepped up to the value at the date of death.

I'm sorry, I don't understand what "stepped up" means.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If the heirs inherit the property there should not be any tax issues because the value of the property will be stepped up to the value at the date of death.

I'm sorry, I don't understand what "stepped up" means.

http://en.m.wikipedia.org/wiki/Stepped-up_basis

Let's say parents bought a house in 1970 for $50,000 that is now worth $750,000, then they die and leave it to their son. The son doesn't want to live there and instead fixes it up a bit and sells it for $775,000. For IRS and state tax purposes the value of the inheritance for the son is $750,000 and he does not have to pay taxes on a profit of $725K, but instead his profit is defined as $25K. I know a professional can explain this better but that is the general gist.

[Anonymous]

Then you aren't the right person to be "defending" your children's interests. Hire a lawyer.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can your kids buy him out of the house?

No, none of the 5 heirs can afford to buy anyone else out. No one wants to actually live in the home either. The current thought is to rent it and divvy up the rental income.

Why would that be the current thought instead of the heirs selling it and splitting the proceeds?

There wouldn't be a tax liability for the heirs. The house would be inherited at the value it was the day great aunt died. If it's sold soon thereafter, there most likely wouldn't be a gain.