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Massgal, Home Buyer in Massachusetts

Capital Gains tax on house bought in 1950?

Asked by Massgal, Massachusetts Tue May 21, 2013

My grandmother bought her house in Westport, CT in 1950 for $45,000. Now the property is easily worth over $1million. She should sell the house and move into a smaller place. But she believes that if she sells the house before she dies, she will need to pay capital gains tax. Buf if she lives in it until she dies, the heirs will get the larger sale price. Does anyone know if this is true? I have advised her to ask a lawyer but without some professional opinion that she might be wrong, the advice is falling on deaf ears. Any thoughts?

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Hi Massgal,

I'm not a lawyer but was in a class recently when this came up. Your Grandmother would be entitled to a 250,000 lifetime exemption when she sold. If she bought it with her husband and hadn't used his credit then I believe she would have a credit of either 450 or 500K. The balance less allowed deductions would be subject to a capital gains tax. But if she dies owning the house, it goes into her estate. In 2013, the estate amount subject to state or federal taxes starts at 5 Million.

Please check with a lawyer, but she should retain ownership of the house.

Best,
Jay Cooke
1 vote Thank Flag Link Tue May 21, 2013
Hi Massgal--I think my first phmeone call would be to a tax accountant. I happy to know a very good attorney who is all a CPA--tax specialist. My partner and husband is also versed on this kind of situation so feel free to get in touch. We'd be glad to help. Mary Ann Laurita, Berkshire Hathaway HomeServices
0 votes Thank Flag Link Sat Jul 5, 2014
Hello, Your grandmother may be close to the truth. You may want to check and see if there may be any exemption for capital gains taxes for the fed and for a senior. My understanding is that since the property is held by one owner who lived in the house as their primary residence for two of the last 4 years that she would be allowed a $250,000 exemption for capital gains. You may want to also check her basis on the property for improvements etc., to increase the $45,000.

As for the estate tax depending on what other holdings she has I believe the 1 million may be under the federal taxable minimum, but that is in flux from year to year. You really have to look at the estate as a whole and consult a good tax attorney to develop a sound strategy to proceed ahead.
0 votes Thank Flag Link Tue May 21, 2013
Jay's advice regarding a lawyer is sound. Not having all the facts it appears Capital gains tax is a significant issue. A husband and wife are entitled to a $500k exemption plus qualified improvements, which could be considerable. However, there is a time limitation, if the husband has passed away, where his portion is disallowed. I think yoou need to discuss these issues with two people; your accountant and an eler care attorney. The latter is crucial for estate planning purposes. These are difficult issues and professional advice is critical to do the proper planning. There is an attorney by the name of Lynn Eliovson in the Fairfield - Westport area and she is excellent. If you cannot locate Lynn, give me a call or drop me an email and I will get you her number. By the way, I believe when property passes to heirs it does take on the market value at the time of transfer, but these issues are all covered in the elder care discussions. It is expensive to retain these attorneys but theu can also save you a bundle. If I can help feel free to get in touch.
0 votes Thank Flag Link Tue May 21, 2013
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