|
Capital gains on an inherited
house
Dear Tax Talk:
We were left a home in a will as an only
child. I have spent the last two years renovating it to get it ready
to sell. Are we liable for capital gains tax on this property once
it is sold? I have put a lot of money and my own labor into getting
it in good shape for the market.
What percentage of tax do we have to pay, and
does it make a difference because it was family property that was
willed to us as only family? Is there any way without having to
pay taxes? Is the Bush government looking to do away with the capital
gains tax? I hate to have to give money to the government when I
have put so much work into this project.
I can't seem to get an answer on this situation.
As the house will be sold in this year any taxes would not be due
till 2002. Would a law change be in my favor, or would the house
have to be sold after a law change to help our situation?
I look forward to hearing from you.
John
Dear John:
I don't think the Bush tax proposals will
do away with the capital gains tax, but then again you may not have
to pay capital gains tax on the sale of the property.
When you inherited the property from your parent's
estate, the value at the date of their death is your cost for tax
purposes. Add to that the cost of any improvements you made to the
property (do not add anything for the value of your time since you
were not paid for the work). Since most people can't get the value
out of their home when they first acquire it, it is doubtful that
when you add up the value at the time of death plus the improvements,
that the home would sell for much more.
Of course, if you don't have a gain on the property
when you sell it then you won't owe any tax. It won't matter much
when you sell it or what happens with the tax law.
Bank-managed mutual funds
Dear Tax Talk:
My husband and I let our bank take some
of our money and put it in several mutual funds. We have been watching
it, and we are constantly losing our money. If we take this money
out, they will charge a fee for that.
I am not sure what the Internal Revenue Service
would do if we took it out. Would the IRS try to tax us on that
money even though it was originally in a savings account? Would
we be better off taking the money and reinvesting it ourselves?
Thanks for your advice.
Concerned,
Susan
Dear Susan:
Unfortunately, last year was not the best
year to first invest in the stock market. And to make matters worse,
a lot of mutual fund holders are stuck with a tax bill from capital
gain dividends even though they have had an overall loss in value
of the investment. And like you, the mutual fund holder may be hit
with a delayed sales charge if they want to switch out altogether.
Still, if you sell the fund for less than you
paid for it, you will have a loss that you can use to reduce your
taxes.
I'd recommend that you sit tight on the mutual
funds since it is never good to buy high and sell low. If by the
end of the year the investments have not recovered in value you
may want to consider selling some of the funds to lock in the tax
loss. You should be able to avoid the sales charges if you switch
(sell and buy) to a related mutual fund offered by the bank as part
of its family of funds.
Bankrate.com writers base their answers on our
editorial content and advice of financial professionals. We make
no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
|
