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taxes or no taxes

Posted by sugar_fl (My Page) on
Fri, Mar 19, 10 at 17:44

I don't know if this is the proper place for this post but here goes.
One year ago almost to the day I sold my house. We paid $12,00 for it in 1965. I only got $50,000 minus half the closing cost for it. I had moved to Fl & lived in a mobile home. My son lived in the house & Social Security MADE him pay me $300 a month rent. I also paid ALL the bill there. When I sold it they asked if I rented it out & for fear getting him in trouble with SS I said yes. I called H&R Block & told them everything. I was told I didn't have to pay any kinda Tax.. that is great if it is right. Does it sound right? I would hate to end up in trouble if it isn't right. Unfortunately I didn't get the name of the lady who told me that. I guess I was just so excited about not having to pay taxes. That money is all I have above my little SS check.
Thanks for any help & hopefully assurance.
Dar


Follow-Up Postings:

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RE: taxes or no taxes

I don't know the answer to your question, but my guess is that as long as you file a yearly income tax form, you will probably slide under the IRS audit radar.


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RE: taxes or no taxes

I haven't had to pay taxes since about 1995 or 1996. I had H&R Block do them till they told me I didn't have to pay any longer. I did file last year to get the $250 stimulus check everyone got. I didn't receive a 1040 (I think that's the name) form this year. As U can see I'm not a business minded person & never worked outside the home.
Dar


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RE: taxes or no taxes

Sugar, don't worry. So long as you lived in the house for 2 of the last 5 years you don't owe a penny on the first $250,000 of the gains of the sale of your house.

Here is a link that might be useful: Tax info


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RE: taxes or no taxes

Terriks,
But I moved out in 2000. I don't want to pay it (I need it) but don't want to be in trouble either. I told all this to the lady at H&R Block.
Dar


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RE: taxes or no taxes

Don't you think a tax lawyer should be the one to ask? Or at least the local office? What if you follow the wrong advice?


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RE: taxes or no taxes

But I moved out in 2000.

If it didn't rise in value between then and now--and that seems likely--no tax is likely owing. (Not an accountant.)


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RE: taxes or no taxes

Check with a tax professional, but from my experience (which is as a realtor, not an accountant) you dont have to pay taxes under the situation you mentioned. Good luck.


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RE: taxes or no taxes

No phone calls, go and actually talk with at least a tax preparer.

Bring all you old tax forms.

If you sold outside of five years after moving out of the place and 'renting' it ti your son you missed the exclusion on the gains.

You also may have an issue with how you treated the 'rental' income.

By not being truthful all the way around you may have dug yourself a nice tax hole.

The first thing is to stop digging.
The second is to get an experienced tax person (and you may end up needing an attorney) to look over the situation.

The numbers are small so IRS attention is not likely, but there is NO statute of limitations on tax fraud (only on errors).


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RE: taxes or no taxes

If I was wasn't truthful it was through ignorance but I know that isn't an excuse they will except. If I hadn't been so truthful I wouldn't be in some of this mess.. I could have lied & said I wasn't getting any rent from my son...I am not into lying though This isn't the 1st time I have have had to pay more for being honest. I will be the winner in the very end.
My son was born in that house but I had to sell it as I needed the money to live on.. I would never have charged him except for the fact Social Security said I had to. I live on a Church of Christ University campus in a senior housing Apt.
There is a law school here who will help us free. I just don't know if the handle tax problems... I will find out Monday...they should be back from spring break then.
Thanks,
Dar


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RE: taxes or no taxes

I am a CPA, altho' retired. Sale of rental property is different than sale of a personal residence. Gain on sale of a personal residence in some cases may be excluded from income (not taxed), but gain on the sale of a rental property is generally taxable. Your gain (roughly $38,000)would be taxed all most entirely as long-term capital gain, which has a federal tax rate between 0% -15%, depending on your income. If the gain was your only income in 2009, and you are single, your capital gain tax rate is closer to the 0%, so it is unlikely that you are looking at a big tax bill. That said, I would recommend that you use that law school or other volunteer tax preparer to report the gain. It is possible that you could owe a tax in the state where the property was located.

In theory, you should also amend tax returns to report the rental income for a number of years. But if the expenses were more than the income, I would not bother. And b-t-w, even if your son had not paid you rent, when you moved to FL, the house stopped being your primary residence. So the gain would still be taxable.

Good luck!


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RE: taxes or no taxes

At the very least if you rented the place you are required to depreciate it.

This can result in depreciation recapture when it is sold.
Even if you do not actually take the depreciation, the recapture tax must be paid as if you did.

You would not be the first person who rented and failed to correctly depreciate and gets hit for it on recapture.
You can file amended tax returns, but there is a time limit on them. (2-3 years seems to ring a bell).

Good luck on getting the mess straightened out.

It is likely past anything H&R Block can handle.


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RE: taxes or no taxes

I am so confused & very worried. I just wish I could have sold it when I moved.. I couldn't as my son wouldn't have anywhere to live. He is disabled & can't work. I finally got him into public housing which he can mostly pay his own way with his Social security disability check.. He has started eating sandwiches twice a day to help with the expenses. He is also diabetic & that's not good. He gets VERY little money. He is physically able to care for himself.

I don't know what expenses I can count or what to depreciate or what the recapture even is. It is probably to late for amended tax return.
My son had rages & tore the house to pieces. I was lucky to get what I got. His rages is one of the reasons I moved out..I got remarried & moved to Florida but he is dead now too. I say HAD rages cause he is doing good now with the corrects medicine finally.. We still can't live together though...it wouldn't work. I don't have any old tax records.. H&R Block told me sometime about 1995 or 96 said I no longer had to file. With 2 move & total clean out of the house I no longer have them. Now if I could deduct all I lost when I sold the house I'd be OK BUT I know I can't. A lot of my belongings were still there & most I just gave away.. no time for a yard sale. That's a different story & over.
This house is in VA. I now live in AL.
Dar


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RE: taxes or no taxes

Are you talking about:

paying taxes on your house, or
paying taxes, period?


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RE: taxes or no taxes

" I don't have any old tax records.. "

The IRES has copies of them if you need them.

Do not rely on H&R for anything out of the ordinary.

They now how to fill out forms.

They rarely know the law behind the forms (and even the accountants have problems there).


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RE: taxes or no taxes

From a tax standpoint, it would have been better had you been able to sell when you moved. But, you did a good deed, and now you have some aggravating paperwork to deal with, but it should not be a major worry.

Remember that in addition to the $12,000 you paid in 1965, that you undoubtedly made improvements to the house over the years. Those improvements would increase your cost basis in the house, and reduce the gain on sale. In all likelihood, your gain is quite small, and won't cause you to owe any taxes. However, the IRS does have the Form 1099 reporting the $50,000 sales price, so you should see a volunteer tax preparer to report it.


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RE: taxes or no taxes

Please, please go to a professional preparer,preferably an enrolled agent. Your situation is beyond the expertise of most, but not all, volunteer preparers.


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RE: taxes or no taxes

I can see that I am going to end up spending most of the money I have left on this. I am 73 & can't work. I sure would hate to have to try & live on my Social Security alone.
Needless to say I am very scared.
Dar


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RE: taxes or no taxes

Going with the "pro bono" or free lawyer is your best bet. I personally would not spend all my savings on this problem.


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RE: taxes or no taxes

Some volunteer tax preparers are CPA's or enrolled agents or tax attorneys. Your situation is actually not that complicated - it just took a bit of back and forth to understand.

You should make a list of improvements that you made over the years, and estimate the cost of each. That will help tremendously, even if you no longer have records.


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RE: taxes or no taxes

If you can find a volunteer preparer who is a tax attorney or enrolled agent, then you should be fine. Many CPAs can do taxes but not all have any experience. An experienced tax preparer will know how to deal with the unclaimed depreciation which will save you many dollars in taxes.


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RE: taxes or no taxes

Take a deep breath and relax. This isn't going to bankrupt you one way or another as long as you take some steps to fix any errors you might have made.

If possible, find a local volunteer tax prepared or CPA as discussed above. If you can't find someone like that, any tax professional should be able to help you for hundreds (not thousands) of dollars. You may owe taxes on part of the 50k, but the IRS isn't going to take all 50k from you. Based on the details you have given, I would be surprised if you owe more than a couple thousand in taxes.


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RE: taxes or no taxes

You should go to your local senior center for help. If they don't have a volunteer tax person they should be able to find one for you.


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