Help! May Be Making A Huge Mistake!!!
Here is the deal. My sister in law just sold a plot of vacant land for $320,000 in Las Vegas. Her husband paid $26,000. That was 15 years ago. She called tonight to say that she has dicided to pay the capital gains tax on the money and pay off her home if there is anything left they may buy a vacation home. I have tried to explain to her that if she did a 1031 exchange she could avoid the tax.
She has met with a lawyer, a 1031 specialist and a realtor. All our friends of a friend type deal. She would not say what they recomended so I assume they said the same thing as me. How ever they told her should would only have to pay %15 for the tax.
My best friend is an IRS agent I called him and he thought more like %40. So what should I say to her. I think she is screwing up. Any advise... She does not want to be a landlord and thinks investing is to hard and stressfull.
Please help....
I believe the tax rate is capped at 15% due to the new law that Bush signed. I think it went into effect for any properties sold after May, 2003.
I am not a CPA, but that is how I understand it...
As I understand the new tax law, the rate is capped at 15%, the IRS, friend or not, are not here to be your financial friend( more like thief), your friend is not telling you the truth at 40%. Your sister needs to research this or she will get taken advantage of.
good luck
Don
Thyanks guys,
Wish she would do something good with it. If she did a 1031 exchange she would not pay anything right?
Oh well....
Quote:My sister in law just sold a plot of vacant land for $320,000 in Las Vegas. Her husband paid $26,000. That was 15 years ago. I have tried to explain to her that if she did a 1031 exchange she could avoid the tax.Since your sister has already closed on the sale, it's too late to structure a 1031 exchange. The exchange has to be set up before the sale of the relinquished property takes place. Your sister's profits appear to be taxable as a long term capital gain.
Quote:...they told her should would only have to pay %15 for the tax. My best friend is an IRS agent I called him and he thought more like %40.Let's give your IRS agent friend the benefit of the doubt. If your sister's profit on the sale were in fact ordinary income, then she would be in the highest tax bracket (the 38.6% top bracket rate was reduced to 35% on May 6, 2003).
However, since it appears that her profit on the sale is a long term capital gain, the maximum capital gain tax rate will be 15%.
Quote:So what should I say to her. I think she is screwing up.At this point, since you may be operating under misinformation and incorrect assumptions, it is probably best to say nothing.
It is her life and her money. If she has already talked to a lawyer and a 1031 specialist, you have to assume that they gave her correct information. There is nothing they can do for her at this point. She will have to pay the capital gains taxes.
Thanks Dave,
She talked to the lawyer and specialist before she signed the papers but she just will not be an investor.
You are right sit back and shut up but it is hard not to fear for family. Thanks again
Just to clarify the potential tax issues, you have three potential taxes. The maximum Federal capital gain tax is 15%, but you also have depreciation recapture tax at 25% (if any) and then you may be subject to state capital gain taxes depending on the state she is a residence of.
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She lives in NV. I hope all works out. Will keep you up to date.