AboutRichard Fritzler Expertise I am in the business of tax planning for business owners. Our company helps business owners structure so that they can be reduce the taxes that they owe, making them far more profitable.
Experience Since 1986 I have been helping successful business owners reduce taxes, protect assets, and limit their liability. The company is Owelesstax, incorporated at www.owelesstax.com
Organizations National Small Business Owners Association.
Nevada Association of Listed Resident Agents.
Citizens Legal Association
The Business Owners Institute
Publications Contributing author to "The Corporate Standard Newsletter".
I am also a writer for an email newsletter about business
Googlegroups/Successfulbusiness
I am also an Expert in the areas of Tax Law, Retirement Planning, and Estate tax issues.
Expert: Richard Fritzler Date: 8/18/2007 Subject: Tax on sale of house
Question QUESTION: My mother is 86 years old. She lives with my sister. Sometime within the next two years I am sure that my mother will need full time care during the day when my sister is working. My mother still owns her house and is still considered as her residence although she stays with my sister and the house is empty.She has a monthly income of $2200 from SS and retirement income Presently someone wants to buy the land that the house is on for $1,000,000. My question is how much income tax will she have to pay from the sale. Is there any we can do before the sale to reduce the taxes?
ANSWER: The big items:
$250,000 of that sale would be exempt from Federal taxes, assuming that she has lived in that house for two out of the last 5 years.
The rest would be a long term gain, and the federal tax rate would be 15%.
You would also need to consider any State Tax Rates.
Richard Fritzler
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QUESTION: Would doing a "structured sale" be something we should consider?
ANSWER: What State are we talking about?
A "Structured Sale" would not reduce the overall tax, and If she received even a small percentage of the purchase price up front the IRS wants ALL the Taxes paid first.
At $750,000 of taxable gain it is worth considering alternatives. Most conventional alternatives do not actually reduce the taxes, they simply postpone the taxes.
There is a way to "Step Up Basis" on the property, resulting in no tax when it sells. BUT it is not cheap, and not easy. It will result in you having more of the money to spend, than not doing it. So if you are really interested call me.
Richard Fritzler
www.owelesstax.com
phone 800 590-6612
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QUESTION: my mother lives in Alabama
ANSWER: Okay, Alabama.
Assuming that she is eligible for the $250k exemption from Federal gain taxes on her primary residence, and that means she has lived in that house for 2 out of the last five years (not just failed to change the address on her ID) she would be at 20% tax on the $750k (15% Federal on long term gains and 5% Alabama State tax). That is $150,000 in taxes.
Now the sale is just for the land surrounding the house and not the house?
If that is the case then she would not qualify for the $250k exemption.
If that is not the case and the house is being sold in this deal but she has not lived there for two full years during the last 5 she also would not qualify.
In either case she'd be looking at $200,000 in taxes.
I have not deducted costs and commissions which would reduce the taxes a little but would reduce the money left a lot more.
So in our theoretical model, she would have $800-$850k left.
As an aside, if she does the sale and she is expecting to be end up in an assisted living facility, or other, her entire worth would be used to support her. If she had enough to support her for 2.5 years and then ran out the Medicare Program would pick up the tab.
This would also be addressed by Stepping Up Basis.
there are a number of variable but it would be reasonable to expect that if done correctly, she would be able to keep $900-930.
Also to consider is what she will do with the cash from the sale, if she just left it in an interest bearing account there would be taxes on the interest, and managing that effectively is worthy of consideration also.
Richard Fritzler
www.owelesstax.com
phone 800 590-6612
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QUESTION: Since my mother is in the 15% Tax Bracket Would she be taxed at 5% or 15% federal on LTCG
Answer She would be taxed at 5% on the part of the gain that stayed below the 25% tax rate ceiling for her. And 15% on everything else.
Excert from an articel written on the subject:
5-percent rate
This capital gains rate applies to taxpayers in the 10-percent or 15-percent income tax brackets. They will pay a maximum 5-percent long-term gains rate on property held for more than a year.
Lower-income investors get an even better investment sale deal in 2008. That year, these filers will pay no tax on sales of long-term holdings.
The 5-percent rate still applies to a portion of your gains even if your asset sale pushes you into a higher bracket. For example, if, as a single filer, your taxable income was $25,000 but you netted another $7,000 from a long-term stock sale, some of that gain would still be taxed at the lower 5 percent capital gains rate even though technically you were bumped into the 25-percent tax bracket.
In this case, $30,650 (the 2006 income ceiling for the 15-percent bracket) minus your ordinary income of $25,000 gives you a $5,650 capital gains cushion at the 5-percent level. Only the remaining $1,350 of gain would be taxed at the 15-percent rate applicable to your new, higher tax bracket.
Effectively, a very small percentage would enjoy the low 5% tax.
Richard Fritzler
www.owelesstax.com
phone 800 590-6612
