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Father with 2 residential homes, wants to transfer one house to his wife/son. Will there be any capital gain tax ?
Sep 20, 2020 10:30:11Hey, Ereshi!
It’s hard to say if the wife/son will have to pay capital gain tax or not. If you live in the US and if the capital gains are above $38,600, it is most likely that there will be a capital gain tax that the wife/son will have to pay if they decide to sell the property.
If, for example, the father purchased the property years ago for $70,000, and until the transfer, he put $10,000 into the home, the property can be currently valued at around $300,000. However, by transferring the house to the wife/son while he is still living, the cost basis of $80,000 would be the son/wife’s basis. The capital gain after selling the property would be the difference between the selling price and the cost basis, and that would be $220,000. For a capital gain rate of 15%, there will be a $33,000 capital gain tax paid by the seller.
Sep 28, 2020 10:36:30However, the capital tax rate can vary from 0% to 20% based on income and marital status. At this point, the importance of making a will can have a different outcome than the one mentioned above. Why? If the son/wife inherits the property upon death instead of transferring the deed, the son/wife’s cost basis would be the property value at the time of death. In this case, if the property is sold, the wife/son will not be responsible for capital gains tax.