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    #16
    Thanks Again!

    Thanks to both of you for the info. I have been reading more about this. I will certainly read the info in the link. I just want to make sure I don't have any problems.

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      #17
      IRS 7520 ratios

      I am understanding life estates a lot better. But I am still having a problem with relating the "7520 ratios" with any calculations. I have seen examples that calculate the value of the owner interest/remainder portions using mortality rates. I have looked at the 7520 ratios, but can't for the life of me see where/how they are used. Could you please show those interest rates for the following info? I just can't seem to see how and what interest rates are used from the 7520 tables. I see where mortality rates are used. I'm sure I will be able to understand if you show me where to get the exact rate and how to use it in this example. Thanks a lot, and I appreciate it!!!

      1. April 2010 - Mother (age 70) creates life estate deed giving her daughter the remainder interest with the mother living there until death.
      2. Home is worth $300K and basis is $50K.
      3. May 2013 - Home is sold and mother is still living in home (now age 73).

      How much for: (1) values at deed creation (2) value at selling (3) capital gains for each

      I forgot to ask before. I thought someone said that it's differently treated if homestead property. My client said it was homestead property. I did call the AL DOR and they confirmed that all income is treated the same and it doesn't matter about homestead (As Snaggletooth stated).
      Last edited by ruthc; 05-24-2017, 05:51 PM.

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        #18
        If you are saying that a "homestead property" is a "personal residence"

        Originally posted by ruthc View Post
        I forgot to ask before. I thought someone said that it's differently treated if homestead property. My client said it was homestead property. I did call the AL DOR and they confirmed that all income is treated the same and it doesn't matter about homestead (As Snaggletooth stated).
        If you are saying that a "homestead property" is a "personal residence" of an Alabama resident then will address this one more time regarding the sale of a personal residence by a Alabama resident.

        NOTE: Also was in contact with a Alabama DOR general representative in the " individual" section who at first said that the sale "personal residence" of an Alabama resident is taxable and no exclusion applies. Then asked the representative if the Alabama Code Title 40 - Revenue and Taxation § 40-18-14 (3) (i) is still valid. After the representative spent 35 minutes looking up their Alabama code section mentioned, the representative said it is still valid and that the Alabama code follows the IRS code section 121 for exclusion (note: one must realize that "general tax telephone representatives" may not have the specific tax information available immediately).

        So if you are talking in your scenario about an Alabama resident then look at and see if the following applies in your scenario:

        Alabama Code Title 40. Revenue and Taxation § 40-18-14

        (3) Gross income does not include the following items which shall be exempt from income tax under this chapter:
        See section (i) below:

        i. For each individual resident taxpayer, or each husband and wife filing a joint income tax return, as the case may be, any gain realized from the sale of a personal residence of the taxpayer shall be excluded to the extent excludable for federal income tax purposes under 26 U.S.C. § 121;
        Always cite your source for support to defend your opinion

        Comment


          #19
          Originally posted by ruthc View Post
          1. April 2010 - Mother (age 70) creates life estate deed giving her daughter the remainder interest with the mother living there until death.
          2. Home is worth $300K and basis is $50K.
          3. May 2013 - Home is sold and mother is still living in home (now age 73).

          How much for: (1) values at deed creation (2) value at selling (3) capital gains for each
          1. First, the 7520 tables are not interest rates. They are factors based on the age at the time of sale of the original grantor of the life estate. One is for the grantor, and the corresponding ratio is for the remainder interest (both of which total 100%).

          2. The home's FMV is immaterial either at time of granting the life estate, or at time of sale. You calculate the gain as you normally would: selling price, less expenses, less (original cost + improvements,) and any stepped-up basis at DOD of joint owner (such as spouse) etc. After the resulting gain is determined, the proper ratio from the 7520 table is applied to determine who reports the gain and at what amount on the respective tax returns. The grantor may qualify for exclusion of his/her portion of the gain under 121. Complete Sche D for sale of personal residence. The remainder interest goes on the daughter's return, who will NOT qualify for 121. She reports a long-term capital gain on Sche D of the remainder interest.

          3. If this home was sold in 2013, it should have gone on their 2013 tax returns. Are they just now being prepared? If the home was sold, how can the Mother still be living there? This scenario does not make sense.
          Last edited by Burke; 05-26-2017, 01:02 PM.

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            #20
            Agree

            Originally posted by Burke View Post
            1. ....,
            3. If this home was sold in 2013, it should have gone on their 2013 tax returns. Are they just now being prepared? If the home was sold, how can the Mother still be living there? This scenario does not make sense.
            Agree that "This scenario does not make sense."

            First Original Poster states house owned with father.

            Later poster says no mother owns the house.

            Then poster states mother died in 2011.

            But ....,are you sitting down?

            Then poster says mother years later 2013 is alive and still living in the house!!!!!??????
            Last edited by TAXNJ; 05-27-2017, 09:34 AM.
            Always cite your source for support to defend your opinion

            Comment


              #21
              Was another example for 7520 ratios

              Originally posted by TAXNJ View Post
              Agree that "This scenario does not make sense."
              First Original Poster states house owned with father.
              Later poster says no mother owns the house.
              Then poster states mother died in 2011.
              But ....,are you sitting down?
              Then poster says mother years later 2013 is alive and still living in the house!!!!!??????
              I am sorry for any confusion. When I posted "IRS 7520 Ratios" on 5/24 I was giving another example in hopes to find out how to know which 7520 ratios to use. I used the term "interest rates" because the term was used in the attached IRS links when I searched for "IRS 7520 ratios".

              To be used to value certain charitable interests in trusts. Pursuant to Internal Revenue Code §7520, the interest rate for a particular month is the rate that is 120 percent of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls. That rate is then rounded to the nearest two-tenths of one percent.

              To be used to value certain charitable interests in trusts. Pursuant to Internal Revenue Code §7520, the interest rate for a particular month is the rate that is 120 percent of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls. That rate is then rounded to the nearest two-tenths of one percent.


              I am confused when I see the different years and months with different rates, I am trying to learn (once the capital gain is calculated using the FMV for selling price)how to know which year and month to use for the 7520 rates and where to go from there. Yes, I was told to use the proper ratios from the 7520 table, but how do I know which one to use?

              I apologize for getting you frustrated at my post. Thanks for your patience!

              Comment


                #22
                Read Burke's explanations.

                Comment


                  #23
                  Use this link and table, it is much clearer: https://www.dcf.state.fl.us/programs...anual/a_17.pdf. Suggest you print and save document.
                  Last edited by Burke; 05-27-2017, 02:30 PM.

                  Comment


                    #24
                    Thanks Burke

                    Sorry I am just responding. I have been out of state. I have seen your attachment from different places (POMS Section SI 01140.120 Life Estate and Remainder Interest Tables or mortality tables. I actually used the table to calculate the grantor and remainder amounts which is pretty straight forward and I understand them.

                    However, I still don't know how those other tables work (the ones I linked in my earlier post). I will just use the table you included in your last post. I will pursue attempting to get more info on the other tables later.

                    As in the past, your time and responses are greatly appreciated!!

                    Comment

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