Alabama capital gains exemption

[ruthc]

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.

[TAXNJ]

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.

Have you tried this to see if it helps?

https://revenue.alabama.gov/incometax/nonresidentwhfaq.cfm

[ruthc]

Thanks TaxNJ

Thank 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!!

[TAXNJ]

Thank 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!!

You are welcome.

Alabama seems to do a good presentation (also including a Q & A) addressing both resident and non resident tax information.

[Snaggletooth]

All Income is the Same

Alabama treats all income the same, no matter what the nature.

They DO exempt most retirement, especially retirement for state workers.

[ruthc]

Thanks

Thanks for that info. More info for me to know. Every little bite helps me understand AL taxes which I never encountred before.

[Burke]

? I never had dealings with AL so I don't know if there is any capital gains exemption like there is for federal.

If 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.

[TAXNJ]

If 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.

Yes, according to Alabama code 810-3-14-.02 Exclusions from Gross Income.

(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.

[ruthc]

Thanks Again!

Thanks again to everyone for your help. I want to gather all the info I can even though it may only occur once for me in AL. Have a great weekend!

[ruthc]

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.

[TAXNJ]

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.

Sounds like you enlightened yourself with your research of the federal 121 exclusion for your client (daughter) since you have all the facts. TTB tab 6 covers the sale of personal residence for additional reference.

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.

[Burke]

, 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?

No. I thought we covered that in the above posts. Only one thing remains that occurs to me; are you sure they owned it jointly, or was the deed changed to the daughter with a life estate for the father? In fact, have you seen the deed to determine exactly what was done? In the long run, since the house was sold prior to his death, there would still be a 121 exclusion for him in all likelihood (gain less than $250K) and she would report capital gains for her part. The only difference would be the percentages of ownership applicable to each party, based on the IRS life estate 7520 rules.

[ruthc]

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.

[TAXNJ]

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!

[Burke]

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.