Have a client who lives in MA that owned a house with her father who lives in AL (sold the house he lived in for years). The house was in both their names for many years. They will split the proceeds which is about $25K each (if not lower). He will have to do an AL return no matter because of his income. I plan on doing a non-resident for her if needed. She always files joint so would she still do the same for AL? I never had dealings with AL so I don't know if there is any capital gains exemption like there is for federal. I looked at info in AL to no avail to get my answer. Any help would be appreciated.
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Originally posted by ruthc View PostHave a client who lives in MA that owned a house with her father who lives in AL (sold the house he lived in for years). The house was in both their names for many years. They will split the proceeds which is about $25K each (if not lower). He will have to do an AL return no matter because of his income. I plan on doing a non-resident for her if needed. She always files joint so would she still do the same for AL? I never had dealings with AL so I don't know if there is any capital gains exemption like there is for federal. I looked at info in AL to no avail to get my answer. Any help would be appreciated.
Always cite your source for support to defend your opinion
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Originally posted by ruthc View PostThank you very much for that link. I did not see that, but is exactly what I need to know. I didn't think it would be that involved, but good to know. I will now be able to speak with my client more on this to make sure she understands. Thanks again!!
Alabama seems to do a good presentation (also including a Q & A) addressing both resident and non resident tax information.Always cite your source for support to defend your opinion
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Originally posted by ruthc View Post? I never had dealings with AL so I don't know if there is any capital gains exemption like there is for federal.
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Originally posted by Burke View PostIf you are talking about the 121 exemption for sale of a personal residence, then it appears that AL recognizes that too. So at least for the father he would have an exemption if he meets the rules. Only the daughter would not, for her half ownership. And she could file separately on a NR return.
(1) Items which are excluded from gross income are listed in § 40-18-14(3), Code of Alabama 1975, as follows:
(j) Gain from the sale of a personal residence 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
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More questions
Now that I think about this more, I have a federal question having to do with the 121 exclusion. The daughter hasn't lived in the house for many years. She owned it with her father for years. Seeing just her father lived there, would she be entitled to any exclusion? I have read the IRS Pub, and I don't think she is entitled to any exclusion (just the father is). Can you please enlightened me? I wanted to go through the process of doing the AL return on TaxAct, but don't have the AL software. The return is only going to be done for 2017, but I figured I would make sure I am comfortable with the results before next year.
I forgot to mention that the reason the house was sold was because the father's health was failing and he went to an assisted living facility. This is normally a reason to get a full/partial exclusion, however, she never did live there, only the father did, so wouldn't he be the only one entitled to the exclusion? I don't find any info that says she can take any exclusion because she did not live there within that 5 years of selling it.Last edited by ruthc; 05-14-2017, 10:56 AM.
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Originally posted by ruthc View PostNow that I think about this more, I have a federal question having to do with the 121 exclusion. The daughter hasn't lived in the house for many years. She owned it with her father for years. Seeing just her father lived there, would she be entitled to any exclusion? I have read the IRS Pub, and I don't think she is entitled to any exclusion (just the father is). Can you please enlightened me? I wanted to go through the process of doing the AL return on TaxAct, but don't have the AL software. The return is only going to be done for 2017, but I figured I would make sure I am comfortable with the results before next year.
I forgot to mention that the reason the house was sold was because the father's health was failing and he went to an assisted living facility. This is normally a reason to get a full/partial exclusion, however, she never did live there, only the father did, so wouldn't he be the only one entitled to the exclusion? I don't find any info that says she can take any exclusion because she did not live there within that 5 years of selling it.
You can do her Alabama return manually to get the result but your other option is you can always purchase the software.
Then you could offer your tax services to the other family member living in that state to help pay for your software purchase.Last edited by TAXNJ; 05-14-2017, 03:06 PM.Always cite your source for support to defend your opinion
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Originally posted by ruthc View Post, I have a federal question having to do with the 121 exclusion. Seeing just her father lived there, would she be entitled to any exclusion?Last edited by Burke; 05-15-2017, 01:39 PM.
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A Warranty Deed
I asked for a copy of the deed because I got different stories each time I spoke with her. She really doesn't understand everything either. She originally told me she owned it with her father for several years after her mother died. Well, the date the deed was filed/cert. was 6/2/2015. Her mother died 1/19/2011. They sold the home due to him going into an assisted living home recently.
The deed states: "Know all men by these presents, that XXX, a widower, whose late wife, XXX, died on XXX, hereinafter called the Grantor, in consideration for the sum of $10 cash to said Grantor in hand paid by XXX, a widower, and XXX (my client), hereinafter called the Grantees, the receipt of which is hereby acknowledged by the Grantor, does hereby, subject to the matters and things hereinafter set forth and the reservation of a life estate in said property by the Grantor, grant, bargain, sell, and convey unto the said Grantees, jointly during the period or term they both survive, and upon the death of either of them, to the survivor of them, all that real property situate, lying and being in the County of XXX, State of Alabama, described as follows to wit:" Then it lists the address of the home.
As I read more, I question if she can get any/partial federal or state exclusion because she didn't live there. However, even though she didn't live there, there was an unforeseeable health event for her father.
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You have to believe what you keep repeating "I read more, I question if she can get any/partial federal or state exclusion because she didn't live there. However, even though she didn't live there, there was an unforeseeable health event for her father."
By rereading section 121 requirements it is not going to change no matter how many times you read it. If your client does not meet the requirements then she will not be entitled to it!Always cite your source for support to defend your opinion
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Agreed! And it does appear the father had a life estate based on what you quoted from the deed. So it is not a 50/50 proposition on the division of the basis/proceeds for tax purposes. Read up on life estates, and you should be using the IRC 7520 ratios as I mentioned in my post to determine how much he can exclude under 121 and how much she has to report as a capital gain. The table can be found on a Google search. You use his age nearest birthday at the time of sale, not when it was deeded over. See this link, 6th, 7th and 8th paragraph under "Disadvantages....." http://www.makiandoverom.com/articles/le.html.Last edited by Burke; 05-17-2017, 12:19 PM.
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