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How to figure cost basis for Capitol Gains tax on real estate. Login/Join 
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Picture of cparktd
posted
I helped my Dad run his construction business for some 20+ years. In the mid 80’s without my knowledge he deeded the site to me that we worked out of as appreciation / compensation and in lieu of sending me to college like he did my two older brothers. Told me after the fact.

I have zero knowledge of how if any that affected his taxes or if he had depreciated the property or....

Now, I have an offer that I will likely take for the property. 100k. (It is assessed in the low 90’s IIRC)

I am 69 yr old married / filing jointly / retired and have no income other than SS and investment earnings that we monthly draw from.

I do have an accountant that has done my taxes for a long time and I will try to consult with him…

BUT

I have no idea of what the cost basis would be or how to figure it.

Or any idea how to minimize the Tax…

Anyone here in that field? Advice? Questions to ask?



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Posts: 4253 | Location: Middle Tennessee | Registered: February 07, 2013Reply With QuoteReport This Post
Just because you can,
doesn't mean you should
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Before you go forward with a potential offer on the property, I would talk to a CPA to see if they have any suggestions.
If your tax guy is qualified to a that, fine. If not, then get someone ASAP.
Too much money involved to not do this with professional help.


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Posts: 10116 | Location: NE GA | Registered: August 22, 2002Reply With QuoteReport This Post
Political Cynic
Picture of nhtagmember
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The gains are calculated from the date it was deeded to you and not the date you became aware of it.

Since it’s a commercial property you’re entitled to take depreciation on the Section 1245 property and Section 1250 property. The value of the land is non-depreciable.

You need a good CPA to find out what relief you may be able to take.
 
Posts: 54246 | Location: Tucson Arizona | Registered: January 16, 2002Reply With QuoteReport This Post
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Picture of cparktd
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quote:
Originally posted by 220-9er:
Before you go forward with a potential offer on the property, I would talk to a CPA to see if they have any suggestions.


Used a highly regarded CPA in the largest most recomended accounting firm in the county for decades, but he got promoted. VP or such IDK, and my account got transferred to a guy I don't know, at all.

But I will consult with him next week if I can get an appointment. In the mean time I am meeting with, and getting a written proposal from, The would be buyers tomorrow afternoon.



Collecting dust.
 
Posts: 4253 | Location: Middle Tennessee | Registered: February 07, 2013Reply With QuoteReport This Post
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Picture of Sailor1911
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I am a CPA. Not enough facts to draw a conclusion but here are the basics.

In general, based on your description, he gifted you the property way back when. Generally, your tax basis is the same as his tax basis - his original cost. Nuance is that he could have filed a gift tax return at the time and gifted the property at its FMV at the time and used part of his lifetime estate exemption to absorb the excess of FMV over his cost - probably not the case. but could be. So, my take off the top is your tax basis is his original cost.

Do recommend you consult your CPA and provide all the facts and circumstances to get a more determinative answer.

Can you work out a property exchange (a 1031 exchange) either with the buyer or doing a three party exchange? That would offer the possibility of deferring the gain until the received property was ultimately sold - or your die with it and your beneficiaries get a basis step up to FMV at date of death - he who dies with the most toys wins!

Hope that helps.




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Posts: 3821 | Location: Wichita, Kansas | Registered: March 27, 2011Reply With QuoteReport This Post
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I have no CPA advice except consult one. And since records are 40 year old you may need to hire a specialist. I hope your dad was a pack rat and saved every shred of paper.

But just curious, how did you not know you were the owner of this real estate? Tax assessor bills from the county were sent to your dad and he paid the bill ? How did he get insurance on it if in your name ? I assume there is no mortgage involved. Thank goodness there was never an issue till now.

You may also need to hire an appraiser who can access info to give you an appraisal of 1980’s value dated to when the transfer took place.

Best of luck. Keep us updated. I’m fascinated by this situation.

Also FYI. With a 1031 exchange If your eligible you don’t need to buy real estate and manage it. There are companies that exist where can buy into a holding. The method is known as a Delaware trust. Google it for more info. Very similar to buying a REIT but in your 1031. That is if you don’t want to own directly and manage.
 
Posts: 5232 | Location: Florida Panhandle  | Registered: November 23, 2008Reply With QuoteReport This Post
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The cost basis is the value on the date it transferred to you. That date should be well known by the title transfer recording. Many ways to then come up with value at that point in time but most likely the best is to get a real estate appraiser to do a point in time comparative analysis. Since your dad did not own the property there is no issue on him depreciating it.


“So in war, the way is to avoid what is strong, and strike at what is weak.”
 
Posts: 11341 | Registered: October 14, 2004Reply With QuoteReport This Post
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Picture of cparktd
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I'll address a few comments.

He acquired the land in 1973 from another family member that owed him money.

We built the building in 1974. I was 19 at the time, and was employed by him.

About ten years later, without consulting me before hand, he transferred the property to me. He soon after told me what he had done.

I have paid the property tax on it ever since.

He would have likely depreciated it for the 10 or so years he owned it.

I Actually found the assessed value at time of transfer with some online digging on the TN property tax website!

9/10/1986 $27,493.

So. thanks for the help....

I still have no idea what the tax will be... other then the basic increase in value of $72.507



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Posts: 4253 | Location: Middle Tennessee | Registered: February 07, 2013Reply With QuoteReport This Post
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Sailor is correct here. If your dad gifted it to you, your basis should be his original basis. Not the value at the date of the gift. If you had inherited it via your dad's estate, then you would have the stepped up cost basis. Confirm with your CPA.

Same rules with appreciated stocks and bonds. Better to inherit them instead of gifting.
 
Posts: 3291 | Registered: August 19, 2001Reply With QuoteReport This Post
Savor the limelight
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Sounds like the basis in the land is whatever amount was owed to your dad that he canceled in exchange for the land. Then you add land improvements, buildings, building improvements, etc. Then there’s depreciation which is where it gets complicated and your CPA will earn his money.
 
Posts: 12372 | Location: SWFL | Registered: October 10, 2007Reply With QuoteReport This Post
Lawyers, Guns
and Money
Picture of chellim1
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quote:
If you had inherited it via your dad's estate, then you would have the stepped up cost basis. Confirm with your CPA.

Same rules with appreciated stocks and bonds. Better to inherit them instead of gifting.

Is your Dad dead now?
If not, you could gift it back and inherit it later...



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Posts: 25221 | Location: St. Louis, MO | Registered: April 03, 2009Reply With QuoteReport This Post
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quote:
Originally posted by cparktd:
I Actually found the assessed value at time of transfer with some online digging on the TN property tax website!

9/10/1986 $27,493.


https://smartasset.com/investi...alculator#zj5hrvE5B4
 
Posts: 152 | Registered: October 19, 2024Reply With QuoteReport This Post
Victim of Life's
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ballpark estimate is figure 25% tax on your 75k gain.


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Posts: 4922 | Location: Sunnyside of Louisville | Registered: July 04, 2007Reply With QuoteReport This Post
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Thanks guys. I have a face to face (hopefully) with my Accountant Monday... If he returns from being back from sick leave.



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Posts: 4253 | Location: Middle Tennessee | Registered: February 07, 2013Reply With QuoteReport This Post
Ammoholic
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I believe two things: Sailor1911 and trapper189 are correct, and this is a question for your well qualified accountant, not your internet friends. Well, and of course 220-9er and ElToro - it’s like they were channeling jhe888 saying to contact an appropriate lawyer. Smile
 
Posts: 7378 | Location: Lost, but making time. | Registered: February 23, 2011Reply With QuoteReport This Post
Just because you can,
doesn't mean you should
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One other thing, if you haven’t already contracted to sell. You mentioned the value earlier as “assessed” value. You need to have an appraisal done as those mean two different things in many cases.
The assessed value is normally what the local taxing authority bases the value for taxes but an appraisal is what a property should sell for in the marketplace. They can be quite different in some cases.


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Posts: 10116 | Location: NE GA | Registered: August 22, 2002Reply With QuoteReport This Post
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Your CPA is definitely the best bet to give you an exact breakdown, but looking into cost segregation might help minimize your tax hit. If the property was used for business over the years, separating components for accelerated depreciation could lower your taxable gains.

You might want to check out this depreciation calculator: https://costsegregationguys.com/calculator/ to get a rough idea of possible tax savings. It's a useful way to estimate how much you could offset before selling.

This message has been edited. Last edited by: mac_220,


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