Tax Law (Questions About Taxes)/Capital gains tax

Advertisement


Question
My parents built a house in N.C. ten years ago.
My father passed away 6 years ago. My mom
has always been a resident of Florida. She has
rented the house out off and on for the past 3
years. She just sold half of the house for $325,000.
To a long time family friend. How do we figure
out what she owes capital gain taxes on? My
father built the home himself over 3 years.
Thank you for your time!

Answer
Tim,

Thanks for your question.  

First, her basis in the house depends on whether or not she was a co-owner when your father was alive.  If this is the case, her basis is 1/2 of the original cost plus 1/2 of the fair market value at the time of his death.  If he was the only owner of the house, her basis is the fair market value at the time of death.

Since he built the house, you may not have good records indicating the original cost basis. You will have to make a reasonable estimate, but the estimate cannot include the cost of his labor in building the house.

Second, while the house was utilized as a rental, depreciation should have been taken in reporting the proceeds of the rental on Schedule E. Whether or not it was taken, she must deduct from basis the amount of depreciation allowed or allowable during the rental period. Depreciation is determined on her basis in the house excluding the cost of the land.

Third, since she sold half the house, she must then deduct 1/2 of her basis from the selling price (less any costs of sale) to determine her taxable gain or loss.

Since the house is located in North Carolina, she will need to file as a non-resident, reporting the sale for North Carolina income tax purposes.  She will be taxed only on the gain, not any income she has that is not related to NC.

Hope this helps.

John Stancil, CPA  

Tax Law (Questions About Taxes)

All Answers


Answers by Expert:


Ask Experts

Volunteer


John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

©2016 About.com. All rights reserved.