What taxes do you pay when selling a home or inherited property?



Dear Liz: My mother, who turns 101 this year, leaves the property to me in her trust. Its cost is $ 4.5 million. She has other assets that will make her fortune exceed $ 5 million when she dies. I currently have an offer from a person who wants to buy a property. Is it better for her to sell it now and lower the value of her estate? She has never exercised the option to sell her primary residence tax-free at one time. What are the tax consequences if he stays on her estate until her death?

Answer: There is no one-time opportunity to sell a home without paying taxes. Decades ago, homeowners could defer recognition of taxable profits if they bought another home, and homeowners 55 and older could exclude income up to $ 125,000. It was a one-time deal, so you may remember that.

However, since 1998, taxpayers have been able to free up to $ 250,000 in capital gains from the sale of their primary residence if they have owned and lived in the home for at least two of the previous five years. Taxpayers can use this exemption every two years.

Obviously, your mom needs to find a source of good tax advice, such as a CPA or other tax professional. If you have the authority to act on behalf of your mother through a power of attorney or legal representative, you should seek advice from a tax professional as her proxy.

Under current law, if she retains the property, she will receive a “step up” to the current market value at the time of her death. This means that all the appreciation received during her lifetime will never be taxed. On the other hand, if she sells now, she will likely have to pay a sizable capital gains tax even if she takes advantage of the exception. The tax pro will calculate how much this might be.

This tax account must be weighed against the possibility that her property might be taxed. The current limit for real estate tax exemption is $ 11.7 million, and this amount will be adjusted for inflation until 2025. In 2026, it is planned to return to the 2011 level of $ 5 million plus inflation. President Biden has proposed lowering the cap to $ 3.5 million and changing the step up, but these ideas are facing stiff opposition in Congress.

An estate planning attorney can discuss other options for reducing her fortune if she is still with us as 2025 approaches. The tax pro will probably be able to provide guidance.

Reducing credit limits

Dear Liz: You recently answered the question about a woman who asked her credit card issuer to lower her credit limit. While it is true that lowering your card credit limit can negatively impact your credit ratings, it may be necessary to leave a credit room for new cards as your total card credit is counted against your annual income. And, of course, your credit rating will not be affected if the balance is paid before the discharge date.

Answer: Credit scoring formulas Calculate your credit usage based on the amount of credit you are using on the day your card issuer reports your account to the credit bureau each month. Usually, but not always, this is the balance as of the closing date of the statement. Making a payment just before that date often lowers your credit usage and can improve your scores.

So yes, making a payment before the statement close date can offset the negative impact of the lower limits. However, it would be pretty silly for a person to ask for lower limits, thinking that the credit card issuer might prefer them to have less credit. Generally, healthy credit limits are a sign that you are managing your credit well. Even if your credit card issuer may look askance at your available credit, you won’t know exactly where to draw that line. Credit card issuers have different policies regarding how they set credit limits, and they usually don’t broadcast how those decisions are made.

Liz Weston, a Certified Financial Planner, is a personal finance columnist at NerdWallet. Questions can be sent to her by calling 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or using the Contact form at asklizweston.com.


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