{"id":21598,"date":"2023-06-12T13:42:13","date_gmt":"2023-06-12T17:42:13","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/my-wife-owns-her-mothers-home-its-in-terrible-shape-so-we-want-to-sell-can-we-avoid-capital-gains-tax\/"},"modified":"2023-06-12T13:42:14","modified_gmt":"2023-06-12T17:42:14","slug":"my-wife-owns-her-mothers-home-its-in-terrible-shape-so-we-want-to-sell-can-we-avoid-capital-gains-tax","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=21598","title":{"rendered":"My wife owns her mother\u2019s home. It\u2019s in terrible shape, so we want to sell. Can we avoid capital-gains tax?"},"content":{"rendered":"
\n

Dear MarketWatch,<\/strong><\/h2>\n

Before I married my wife, she took out a mortgage on a home in El Paso, Texas so she and her mom could live in it.<\/p>\n

After we married, my mother-in-law stayed at the property and made the mortgage payments. She\u2019s not in good health and my wife wants to sell the property. We never profited from the property as I considered it her mom\u2019s home.\u00a0\u00a0<\/p>\n

\n

The home was purchased for $75,000 in 2005, but it was never kept up and it\u2019s been neglected. I\u2019m even afraid to walk in and see the mess. It\u2019s in the process of being vacated and cleaned. A local realtor said they can probably sell it for $160,000.\u00a0<\/p>\n

The home is in my wife\u2019s name. The home is not listed in a trust.<\/p>\n

Will we be responsible for capital-gains tax? If so, what options do we have to avoid it? Thanks for your insight.<\/p>\n

Taxes in Texas<\/p>\n

\u2018<\/em><\/strong>The Big Move<\/em><\/strong>\u2019 is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.<\/em><\/strong><\/p>\n

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at\u00a0<\/em><\/strong>TheBigMove@marketwatch.com<\/em><\/strong>.<\/em><\/strong><\/p>\n

Dear Taxes,<\/strong><\/h2>\n

You have multiple options to explore, assuming you have come to an arrangement with your mother-in-law and her long-term care after she moves out. If the house does sell for as much as the real-estate agent says, you\u2019re looking at a gain of $85,000.<\/p>\n

If you want to avoid capital-gains tax on the sale of your mother-in-law\u2019s home, the first and most straightforward option: You bite the bullet and live in the home, and not pay the tax man a single cent. <\/p>\n

I know it may be an annoyance, but if you live in the house for at least two years, your gains won\u2019t be taxed under existing rules. The Internal Revenue Service says that if you\u2019re married and file taxes jointly, you can exclude up to $500,000 of capital gains on real estate.<\/p>\n

According to the MarketWatch Tax Guy column: \u201cTo qualify for the larger $500,000 joint-filer gain exclusion, at least one spouse must pass the ownership test and both spouses must pass the use test. When only one spouse passes both tests, the maximum gain exclusion is only $250,000. However, if you and your spouse own two houses, you can each potentially separate $250,000 exclusions.\u201d<\/p>\n

Not interested in moving in?\u00a0You can also consider renovating the property and renting it out. Calculate the projected rental income and see if it covers all the expenses you take on to renovate the home, and also see if it adds some additional income to the family. <\/p>\n

\u201cIt may be worth a discussion to better understand the economics of renting the home,\u201d Matt Sotir, a financial professional with Equitable Advisors, told MarketWatch.<\/p>\n

Not interested in renting either? Then you can also consider a 1031 exchange, if it was treated as an investment property and it qualifies.\u00a0 Talk to your real-estate agent and see if this applies, and if it does, you can exchange the property under the 1031 rules, Sotir said. In other words, you can sell the property and use the money to purchase a \u201clike kind\u201d property, he said. And \u201cgiven the amount of the gain, it may be a complex way to avoid a modest tax,\u201d he added.<\/p>\n

But if you just want to get rid of the home as soon as possible, you can likely lower your tax bill simply by including the costs you bore to fix it up.\u00a0Keep track of all the money you\u2019re spending on the home, if you\u2019re choosing to clean up, repair and\/or remodel it.<\/p>\n

You can list those costs when you file your taxes, and that may cut (but not defer or completely eliminate) your overall capital-gains tax, because you can subtract these costs from your sales price. Consult a real-estate agent on whether this route makes sense for you.<\/p>\n

But a word of caution. Don\u2019t be obsessed with trying to avoid paying the tax man, and then holding onto the home for longer than you want.<\/p>\n

\u201cSometimes, after exploring all options to reduce these taxes, some tax will have to be paid,\u201d Sotir said. \u201cIf the house needs to be sold, try to limit the tax liability to the maximum extent possible.\u201d<\/p>\n

But he agrees that you should sell the house, if that\u2019s what you all want, \u201cand don\u2019t let the fear of a modest tax stop you.\u201d<\/p>\n

By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties<\/em>.<\/strong><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Dear MarketWatch, Before I married my wife, she took out a mortgage on a home in El Paso, Texas so she and her mom could live in it. After we married, my mother-in-law stayed at the property and made the mortgage payments. She\u2019s not in good health and my wife wants to sell the property. […]<\/p>\n","protected":false},"author":1,"featured_media":21599,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-21598","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nMy wife owns her mother\u2019s home. It\u2019s in terrible shape, so we want to sell. 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