Expert: Hans Weber, Licensed Broker Associate - 8/27/2007

Question
QUESTION: Hi Hans,
My brother and I inherited my Dad's house on Long Island, NY when he passed away in 1996. We are thinking of selling, and I was told that you don't pay any tax on the sale of your first home.
Is this true?
Thank You!


ANSWER: HI Kathy,

Thank you for your question.

First you have to find out what the basis value was at the time you inherited the house from your father.  That figure should be somewhere in your father's estate papers.

That basis figure is what you inherited the house at and any appreciation above that could be taxed as capital gains, but you have deductions including your $250,000 individual exclusions which have qualifying occupancy (you have to live in the house) requirements.  Capital improvements and selling expenses are also deductible.

For complete details you should consult your accountant or lawyer to see how you can best take advantage of the various deductions available to you in order to pay the least capital gains tax.  

Prices have at least doubled, maybe more in the last 10 years, so you should have a gain.

Hans



---------- FOLLOW-UP ----------

QUESTION: Hi Hans,
The house was appraised for $225,000.00 when we inherited it.
I know it has at least doubled. Can you guesstimate what might happen if we sell? My brother is giving me a hard time about selling - he wants $750,000... which he will NEVER get! And he  is afraid of walking away with next to nothing if we sell.
Thanks again!
ANSWER: HI Kathy,

Why is your brother giving you a hard time?  Does he live in the house?  Do either of you live in the house? Or is it a rental property?  If you do not live in the house there is no $250,000 individual capital gains deduction.  You have some occupancy requirements to claim the deduction.

The selling price is determined by the current market conditions, not buy what anyone wants for the house.  You should have 2 or 3 Realtors in to see you and the house and prepare a current market valuation or have the appraiser who appraised it in 1996 do another appraisal.  Then you should have a reasonable selling price range.

In either case you have a tidy gain and should be happy.  The capital gains tax is 19% of the profit so you will still have at least $600,000 based on a $750,000 selling price.

Good luck.

Hans

---------- FOLLOW-UP ----------

QUESTION: Hi Hans,
We both live in the house.
He's giving me a hard time because he's greedy... and doesn't know anything about real estate. If he did, he'd know that we could never get that price for our lot. It's 100' x 100', and it's a 3 bedroom ranch. At best, I'd say $550,000... and that's even high!

Answer
Hi Kathy,

Sorry you and your brother are fighting about this.

One solution would be for you to ask your brother to buy you out.  If he thinks the house is worth 750 then you can offer him your half for a discount of not 375, but maybe 325,000.  He gets 50,000 off the price and you get 50,000 more than you expect.  If he really expects 750,000 for the house he should jump on the offer.

Either way you can list the house for sale and if the offers come in too low for your brother, but good enough for you there can be an agreement for your brother to buy you out at the same price as the best offer that your Realtor can get for you from an unrelated buyer.  A right of first refusal.

Let me know what happens.

You both live in the house so there should be not capital gains tax.

Hans