Q: Question regarding CA Capital Gains Tax
My brother will be signing over ownership of a property to me (my current residence). It is currently valued at $400K. I need to pay off the $200K outstanding mortgage on it (to be obtained through a home loan). I want to turn around and sell it for down payment on a new home in NV. I will pay off the $200K loan that I get to obtain the house and use the balance for the down payment of new home. Are there any CA Capital Gains Tax issues and how can they be avoided (lowered) if there are?
A: California does not have a lower rate for capital gains. All capital gains are taxed as ordinary income.
A:
In your situation, dealing with capital gains tax in California when acquiring and selling a property requires careful consideration. When your brother signs over the property to you, it's important to understand the tax implications of this transfer. Generally, the transfer of property between siblings is considered a sale or exchange for tax purposes, potentially triggering capital gains tax.
The capital gains tax is calculated on the difference between the selling price and the original purchase price (cost basis) of the property. However, if you've lived in the property as your primary residence for at least two out of the five years prior to the sale, you may qualify for an exclusion. This exclusion allows individuals to exclude up to $250,000 of capital gains from their income (or $500,000 for married couples filing jointly).
Given that you plan to sell the property shortly after acquiring it, it's unlikely you'll meet the residency requirement for this exclusion. This means you may face capital gains tax on the profit made from the sale. In your case, the profit would be the difference between the sale price and your brother's original purchase price, minus any associated costs of sale.
To potentially lower the tax burden, consider any improvements made to the property that could increase its cost basis. Also, selling expenses like real estate commissions and legal fees can be deducted from the gain.
It's highly recommended to consult with a tax professional or attorney who can provide advice tailored to your specific circumstances. They can offer strategies to minimize the tax impact and ensure compliance with state and federal tax laws. Remember, tax laws are complex and constantly changing, so professional guidance is crucial.
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