Yeah - I would welcome someone with expertise explaining the significance of a “revaluation basis.”
Thanks for all the info. My wife read the thread but hasn’t said much. She did agree to have the real estate agent mentioned above look at the house. My FIL won’t let anyone in the house, he doesn’t want anyone to tell him what to do. So that won’t happen till later.
Property taxes are based on the value of the house. If the taxing entity is using too high of a value and you get an appraisal for a lower value, you can appeal and get a lower property tax bill. That said, there is no way that will come close to saving $110k on a $750k house. Something is off here.
Do you mean selling after your FIL passes will save $110k in taxes? Or the “revaluation basis” will save $110k in taxes?
The more I think about it I think the confused explanation might goes something like this:
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The OP’s wife got the house appraised just now & came up with $750K. This was done to provide a reference point for their future discussions / planning. This has nothing to do with the government’s property tax assessment process.
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One possible plan is to wait until Dad dies then sell the house for the assumed $750K figure.
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Another possible plan is to sell the house now for the same assumed $750K figure, perhaps to raise money to pay for dad’s final nursing home stay. If they did that, they’d owe capital gains taxes on the appreciation between dad’s half-stepped-up basis when his wife died and now.
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The difference between these two scenarios is ~$110K in capital gains taxes that they can either choose to trigger soonish and then pay or avoid entirely by delaying until Dad dies.
Maybe.
Right. I am not a tax expert, but I think if your wife inherits it, the cost basis is adjusted to date of death for tax purposes. So probably not a good idea to sell in his lifetime because of capital gains. This depends on the will, of course: we are assuming that she is the sole heir. I do hope there’s a will in place?
Obviously, consult professionals for advice here.
Meanwhile, is he still living there? If he has to move to assisted living, that does raise a different question: what to do with the house during the remainder of his life. You certainly want to keep it in reasonable condition.
The maximum gain that is excluded from taxability would be 500K - as the gain on this place is over 700K, it’s unlikely, though improvements made over the years increase basis / reduce gain, and the death of one spouse also does something to the basis, so it’s likely quite a bit higher than 16K.
IIRC, it’s something like this:
- Let’s say the house was worth 500K when Mom died.
- Dad pays taxes on the gain (250K) since that point.
- And the individual capital gains exclusion is 250K, so he might be all right.
I am 100% certain I do not have the nuances correct. I’m pretty sure the basis (purchase price + improvements) gets reset somehow on the death of one of the co-owners.
I definitely wouldn’t spend much on improvements without talking to a realor. Some landscaping and a new coat of paint would both be relatively affordable and might make it catch buyers’ eyes, but if it’s likely to be a teardown, I doubt anything more than that would be useful.
This is exactly true.
The value of the house would be included as part of the estate in terms of hitting estate tax limits (though unless Dad has a lot of other assets, it’s unlikely to trip any taxes). Then your wife could sell the place for basically no gains.
However: if the funds are needed to pay for assisted living now, that’s no help. Even a reverse mortgage wouldn’t great, as those are (I think) called when the person moves out, plus they carry a lot of fees etc.
What you do NOT want to do is have Dad transfer the house to the wife while he is still alive. Then she’s liable for capital gains when she sells the place, not to mention any lookback for Medicaid assisted living if that’s a concern.
My MIL passed away May of 2023. That is the date of the step up basis. The current value for property taxes is $560,000, my wife just got the property tax statement in the mail last week. Due to his age and the cost of caring for his wife, he receives a very generous discount on his property taxes. Much of that will go away next year, he won’t have the tax deduction for his wife’s care. That care was costing about $9500 a month, his taxable income through 2022 was 0 and about $11,000 for 2023.
Good advice. The people we bought our house from put it on the market, then took it off the market to do renovations, then put it on again. It was considered undesirable by real estate agents and buyers for this reason, and when we bought it we got a very good price.
As for improvements, I agree with the consensus but it might be worth having an inspection done to see if there are any vital repairs to make. Whether or not it makes sense to do them, it might be worth knowing about them to avoid shocking the buyer. Won’t matter for a tear down, of course.
There’s a substantial “lifetime exclusion” for capital gains on the increase in value of a house. It’s likely they he would owe 0 if he sells it.
ETA: it’s less than I thought, but still pretty high.
Not high enough to exclude all the gains for the example, depending on when the mother-in-law passed. And not nearly high enough to cover the gain in value of my house.
Not that I’m complaining.The exclusion is badly out of date for much of the country, but since I think federal taxes in general are too low for people who have the problem, I’m not in favor of raising it all that much.
Paying Taxes on a Home Sold After a Spouse’s Death | Kiplinger
This whole topic isn’t what the OP was asking about, but since the topic of taxes and capital gains has come up, I googled it. I knewthere was an adjustment to the basis when one spouse died.
Let’s say the home in question had a basis of 50,000 (the initial purchase, plus improvements). Selling it for 750,000 would give a gain of 700,000. Excluding the 500,000 (if sold while Mom was still alive, or within 2 years of her death), this would result in taxable gains of 200,000.
Now, suppose the place was worth 650,000 when Mom died.
Each spouse’s basis was 25,000. Mom’s part “resets” at her death. The basis is now 325,000 (Mom’s part of the value at her death) + 25,000 (Dad’s basis), for a total of 350,000.
Selling it now for 750,000 gives a gain of 400,000. With the exclusion of 250,000,that’s a gain of 150,000. Steep, but less than the 200,000 if it sold while they were both sitll alive.
It could also trigger a temporary bump in Dad’s Medicare (see IRMAA).
Since I think the OP is talking about selling the house AFTER Dad passes away, the basis resets to its value at that point, which means there is little to no capital gain at all. I’m pretty sure the exclusion wouldn’t apply, unless you lived in the place for a couple of years, but if you were to sell right away, it wouldn’t be much.
This is very close to what my family has been going through. Mom died last year. We have been trying to get the house ready for sale ever since. Hopefully closing will happen in a few weeks. We knew it wasn’t going to be a tear down. Not one house has been torn down in the neighborhood. It does need to be renovated. A recent sale on a top down to the studs renovation down the street came in at $70,000 more than what we are getting. Definitely not worth the time, money and effort. That house was in much worse shape. Probably worth it in that case. Ours is just out of date.
We had to pay for work to get the CO approved. This town has a lot of requirements that other towns don’t. We ripped up the carpet that has been covering the beautiful oak floors for 50 years. Put flooring in downstairs to cover up ugly original tile. Painted. And that’s it. The buyer came back with demands but we ignored them. They can fix things once they bought it. We are selling a 1959 house not a brand new one.
Buyers who want things fixed before closing are stupid IMO.
The best way to guarantee craptacular work is to force the seller to fix, or “fix” it. If you want it repaired, demand a price reduction then fix it properly yourself or with contractors of your choice working to your standards. Not the opposite
We bought a house where there were issues with the roof. Don’t remember exactly what, but we weren’t going to buy a house and then fix the roof.
The sellers agreed to get the roof fixed by a licensed, insured roofing company who gave a warranty on their work and the producer of the shingles (?) had a warranty on those. It was about $7500 and they gave us the paperwork, including a statement that there were no issues with the surface they were attaching the roof to. (You can probably tell I’m not too good at home maintenance)
I agree it wouldn’t be very clever to let them have their drunkard brother in law go to the odd-lot store, grab some shingles, nail them up there and declare it good.
But nor would it make sense for us to get a roofing contractor to go in there and get an estimate on the work before we agreed on the sale contract for a price that allowed for the work to be done. If they found something after we signed that raised the cost we’d be in the hook for it.
When we sold my mom’s condo we paid someone to clear everything out of it. The buyer totally remodeled, so right before closing, with the permission of the buyer, my brother removed the kitchen cabinets and some of the appliances for his house.
When we sold our condo in Florida, last spring (the place we’d bought for the in-laws), MIL didn’t really want ANYTHING from the place - she took her own clothing, and we shipped a few boxes of things she’d left behind as well as some memorabilia, but a neighbor wanted to buy the place and was willing to dispose of all the contents. Saved us a HUGE amount of work; we could not have donated the furniture anywhere unless we’d waited 2-3 months for a pickup date.
All in all it was a huge amount of work even without needing to do that: we had to go through all their files and determine what was important to keep (AT&T bills from 20 years earlier? Nope. Tax documents? Yep). Three weeks of work - well, evenings and weekends, anyway (we worked at paying jobs during the day).
My husband and I have become VERY interested in decluttering our lives, as a result.
A LOT of people have learned that lesson that way. Myself included.
By virtue of a couple previous downsize / declutter cycles plus just now a separation leading to impending divorce, I’m now at just about low-ebb on possessions since maybe college. I think that if you ignored any packing and just dumped everything I own into the bed of a full-length pickup truck it’d all fit and except for two taller items, not even get close to reaching the lip of the truck’s sides & tailgate. Toss a tarp over it all and I could move household anywhere.
It is funny how little crap it takes to live, and how seductive is the impulse to add crap back in. But very different crap.
I had black mold in my ceiling and wall. My realtor said I had to get that fixed or I couldn’t sell it except for a pittance as a teardown. It was smack in the middle of a neighborhood with dozens of identical houses that were in pristine shape, why would anyone buy my shi!t-hole when a similar house down the street needed very little?.. I had that remedied, it took weeks and thousands of dollars. Also three enormous Norway maples taken down. I was anxious to sell and get out of there, so I made all the improvements, had the place painted, and cleaning it out and disposing of the contents: that was me. Just me. With very little help. I was never happy there. It sold within a month, just glad to be rid of the place.
Wait, what? Sorry Bro.