???must sell by 12/31 to gt $500k exclusion ??? - Posted by GIO

Real Estate Investing
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Posted by GIO on November 06, 2000 at 01:57:19:

TomC,
thanks for your and others response, husband passed in June 2000. Isn’t her cost basis still $112k (there is no stepup of half the home current value on her husbands side) anyway, and the math example you provided is still correct ? thus a land contract/ctc for deed idea is still good.

I’m assuming this is correct - Yes ?
thanks again - i’m awaiting her response. I got this thru a local paper column and the writer will see if the widow wants to talk to me.

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???must sell by 12/31 to gt $500k exclusion ??? - Posted by GIO

Posted by GIO on November 03, 2000 at 12:02:55:

a widow who says her home is worth $814k (yeah - big money)must sell and close by 12/31/00 to obtain the $500k cap.gains exclusion due to the death of her husband.

Any ideas on how to make money on this quickly or on how to delay this law to give me some time to find a suitable buyer.

home is only in her name and was purchased 25 yrs ago for $112k. I don’t know if she has any other liens on prop.(she hasn’t given the impression of such), i must of course verify fmv, i am waiting for her reply, i have very little info because i came in originally as a 3rd person.

Any ideas i have are just marketing ideas by having her cut her sale price ALOT to find a quick buyer - but to close by 12/31/00 is a bit hairy with these big #'s.

Thanks in advance.
gio

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Why does she have to sell by 12/31? - Posted by Rolfe Kurtyka

Posted by Rolfe Kurtyka on November 03, 2000 at 23:11:17:

Couldn’t determine from your post whether or not she is still living in the home. To claim the exclusion, she has to have used the home as her primary residence for two of the last five years. The only way I can see that she would have to sell to avoid the cap gain tax would be if she is approaching that deadline.

Rolfe

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Fastest way to sell… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on November 03, 2000 at 18:07:38:

Gio:
Have her start marketing the home for sale with OWNER FINANCING Immediately. This will expose the property greater and attract many more POTENTIAL buyers than would exist using other marketing methods.

It is feasible to sell a home, and close QUICKLY using seller financing in lieu of the buyer having to get his own loan lined up. We have closed deals in as little as 7-10 days!! when seller financing is involved and that includes even SELLING the seller financed paper for cash.

She can take back paper dated 12-31-2000 and then either hold on to that paper and season it or look to convert it into immediate cash liquidity. The KEY will be how the deal was structured ?

This is an expensive property that we are dealing with and it might be wise for her to finance the sale with 2 notes, a 1st lien and a 2nd lien. Clearly she must FIND the right buyer first.

You can profit through the sale (brokering) of the seller financed paper while your assisting this seller who needs to sell.

To your success,

Michael Morrongiello

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Re:must sell by 12/31 to gt $500k exclusion - Posted by TomC (MD)

Posted by TomC (MD) on November 03, 2000 at 13:59:03:

Gio:

This is where you may be able to step in as a “problem solver”. That is, if the tax problem really even exists. Huh?

You see, when the husband died, his 50% of the home (assuming they held title with joint tenancy - very common for married folks) should have conveyed to his wife at CURRENT market value, not his original cost basis. So her cost basis is much higher that the $56K (half of $112K) that she assumes.

In addition, the cost of any improvements like additional bedrooms, decks, baths, upgraded kitchen that increased the value of the property should be added into her cost basis to drive down the taxable portion of the profit.

OK, assuming we don’t know about the stuff I wrote above or if I am completely wrong…

Get the owner to sell you the house on a land contract/contract for deed with a small downpayment before her 12/31/00 deadline. Assuming your FMV estimate is truly correct, make the sales price to you well below market value like around $700K. The IRS treats this as an installment sale, since a transfer of equitable interest has occurred. Have her defer the first payment for 6 months to give you time to find a retail buyer at the $800k level.

You then do a double-close on the house, and at that time the seller receives her $700K (less taxes), and you walk away with a nice paycheck.

Her taxable portion will be $700k less her cost basis.

Example:

$700K sales price
-112K purchase price
-50K improvements

$538K net profit
-500K tax exemption

$38K taxed as long-term capital gains

So the seller would have to pay taxes on only the $38K, and the rest of the profit is tax free.

TomC (MD)

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Re: Why does she have to sell by 12/31? - Posted by Tom

Posted by Tom on November 04, 2000 at 08:04:44:

Her Husband died, to use his exemption it would have to be in the year he died, however, in her case, she doesn’t need to sell, she needs to see a GOOD tax lawyer. Investors and real estate agents should never give tax advice.

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Re: Fastest way to sell… - Posted by GIO

Posted by GIO on November 06, 2000 at 01:59:58:

yes Mike thanks for the idea again.

  • i’m awaiting her response. I got this thru a local paper column and the writer will see if the widow wants to talk to me.
    gio
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Re:must sell by 12/31 to gt $500k exclusion - Posted by Rick V

Posted by Rick V on November 03, 2000 at 20:52:09:

If you will re-read his post, it says that the house was in her name alone. Therfore, there is no step up in basis as a result of her husband’s death.

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Re: Why does she have to sell by 12/31? - Posted by GIO

Posted by GIO on November 06, 2000 at 01:06:39:

i’ll let the widow go to the tax pro but please explain why you say she does not have to sell this year.
the husband died June 2000.

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Re:must sell by 12/31 to gt $500k exclusion - Posted by TomC (MD)

Posted by TomC (MD) on November 04, 2000 at 06:26:38:

Thanks for pointing that out, Rick.
Yup, I missed that! :o

So, depending on when her husband passed - she may actually need to close the sale by 12/31.

Gio, if you are still reading - ignore the first part of my response in this situation, and focus on the second!

Michael M’s idea is just is sound, providing you can find a retail buyer that can close within the next 60 days.

TomC