Does My Brother Owe Captial Gains
My brother is willing to give me $100,000 gift of equity but I will have to pay the capital gains.
He is selling me a property for 600,000 but will gift 100,000.
How much capital gains will he own.
Before one can determine if your brother will have to pay capital gain tax, more information will be required.
Example:
1. How much did he pay for the property?
2. Did he depreciate it and if so how much?
3. How much were his closing cost?
4. Did he add improvements to the property?
5. Has he refinanced the property?
6. Is it his primary residence and if so is he married?
1. How much did he pay for the property?
$309k
2. Did he depreciate it and if so how much?
Purchased in 2001 - claim depreciationg for 5 years (till 2006 not sure how much).
3. How much were his closing cost?
NOt sure
4. Did he add improvements to the property?
Yes, approx 20k
5. Has he refinanced the property?
yes 2x
6. Is it his primary residence and if so is he married?
No its not, no he is not
I see.. Well, what is the minimum would pay on 100,000 ? - I heard that he can gift up to 10k and everything else needs to payed for .
Thanks for your response.
James
The gift reduced the amount of the sale to $500K, no cash was giving just a gift.
Wow, this would be incredible if you are correct that no gift tax is due.
How can I substantiate your belief - tax accountant? Is there a website or book that you can refer me too?
You and your brother should consult a licensed tax professional. Too much money is involved if you get it wrong.
When related parties are involved in the transaction, the difference between the actual sale price and the FMV of the property is a gift of equity.
Since the appraisal will establish the FMV of the property at $600K, then that is what the IRS will use to determine the amount gifted to you.
Who would know that there was an equity gift? Is there a reporting mechanism?
All the time investors buy for 70% of market value or even less but somehow in this situation someone will know there is a gift involved?
Five bucks says that when your write the offer for $500k the appraisal will amazingly come in just over that and that will be the end of it.
Quote:In short how is his capital gains tax increased because he is gifting me $100 of equity? The capital gains tax on his $100K gift is $15000
New Kid: - I think that is my question: will he owe the 15K for capital gains? Does the fact that its a gift free him from paying the extra 100k capital gain?
RonInAZ - I need the appraisal to come in at 600k. When that happens and my brother gifts me the equity it acts as down payment. So if I am gifted 20% of a 600k which is $120K and my brother ultimately sells me the house for 480k then I get the property with no money down.
Bank gives my brother 480K and I have a 480K loan. I then give my brother 20K and 15K+ more for his(capital gain) tax burden.
I was hoping there was a way to avoid paying capital gains on the 120K which would mean I get the property for 20k out of pocket.
Thanks
Why not have your brother grant deed you a 1/6th ownership interest, then later refi to pay him off his 500k?
Ok, that makes perfect sense to me.
Yes, I am trying to aquire without putting up $$$ except closing. I will have my brother write a note for the captial gains.
Thanks.
The accountant is correct. The rollover replacement rule for primary residence was repealed in 1997. Now, the sale of a primary residence is a taxable event regardless of what you do with the profits.
If the homeowner meets the two year rules for both ownership and occupancy, then up to $250K of the sale profit on his primary residence may be excluded from capital gains.