Q: I want to understand how capital gain will impact my sister-in law. owned the house for 30 years,
Bought it for 260,000, and sold it in 2024 for 1.3M. Her husband passed 7 years ago. She is 64 and only has income from SS at 24k a year. Lives in CA. Is it true that if she earns less than 47k in 2024, 44k in 2023 she will not have to pay any capital gains from the sale of her principal residence
A:
Under federal tax law, when selling a principal residence, an individual can exclude up to $250,000 of capital gains from their income if they meet certain conditions. Since your sister-in-law has owned and lived in the house for more than 2 out of the last 5 years, she qualifies for this exclusion. However, as the gain on her house sale is significantly higher than $250,000, she will only be able to exclude a portion of it.
The idea that she won't have to pay any capital gains tax if her income is below a certain threshold is a misunderstanding. The capital gains from the sale of her home will be added to her income for the year, potentially placing her in a higher tax bracket. This could result in her owing capital gains tax on the amount that exceeds the $250,000 exclusion.
Given the complexities of capital gains tax and the significant amount involved, it would be wise for your sister-in-law to consult with a tax professional. They can provide a detailed calculation based on her specific circumstances, including the impact of her husband's passing on the cost basis of the property.
It's important to approach this situation with accurate information and professional advice to ensure that all tax obligations are correctly assessed and fulfilled. Tax laws can be complex, especially when dealing with significant capital gains and changes in family circumstances.
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