Avoiding capital gains home sale

[Patrick Thomas Dickinson]

Hello

Any tax savvy people / cpas out there want to help me out. 

My moms selling her house in the Bay Area and will have a large amount of capital gains once it is sold, I have a few questions. 

1. You pay capital gains to the feds and your state of residence ( California for us) correct ? 

2. If my moms can creatively come up with a way to keep her taxable income below 47000$ ( for single filers) she would have to pay 0 in capital gains on the sale of her property, am i understanding this correctly. 

If so I’m thinking she could make some sizable donations which would lower her taxable income to below 47000$. It seems like a no brainer to me if I’m correct. Any insight on this ? 

[Bruce Woodruff]

Is it her primary residence? And has she lived there for 2+ yrs? Has she done much in the way of improvements?

[Patrick Thomas Dickinson]

@Bruce Woodruff

it is her primary residence and she’s been there more than 2 years and probably 20k in improvements since owning the home 

[Bruce Woodruff]

Quote from @Patrick Thomas Dickinson:

@Bruce Woodruff

it is her primary residence and she’s been there more than 2 years and probably 20k in improvements since owning the home 

 So she gets to deduct $270k from the profit that would be subject to CG taxes....

[Bill B.]

The answer to the basis of your question everyone seems to have skipped, is no. She doesn’t get unlimited 0% capital gains tax if her income is below $47k. The capital gains is added to her income. She gets the same $250k or $500k if married plus any capex she has receipts for everyone else gets.  (Roof, ac, flooring, etc…)

Elon musk had zero regular income and paid $9billion in capital gains taxes. Pretty sure if there was a way to save $9billon he would have figured it out. 

[David M.]

@Bill B. (I thought last year Musk paid zero.  He exercised his stock options when Tesla was around $1000/sh.  Then, opened his big mouth.  Then, sold around $700/sh.  Now he has $700/sh in cash, and can claim a capital LOSS of $300/sh that he carries over)

@Patrick Thomas Dickinson To clarify the sticking point, the $47k limit is part of the AGI.  So, basically whatever income she has will be added up, including the capital gains, into that number.  If her AGI is over some $500k (whatever the exact number is), then she'd be at 20%.  The only thing I'd have to double check is when is the sec121 exclusion for the $250k capital gains tax exclusion is applied, but I'm pretty sure its applied after...

Capital gains is taxed at the Federal level, and I believe from all the discussions also by California.

You could tax loss harvest any other capital assets that might be down, e.g. stocks.

I don't advocate the charitable donation for the sake of tax...  Why give away a $1 for the sake of not paying say $0.15?  At least federally, if your capital gains tax rate is 15%, you are paying 15cents on the dollar of your capital GAIN --- not the value of the house, just the effective profit.  Why wouldn't you want to keep the 85%?  Giving the money away, albeit for a good cause I'm sure, just for spite not to give Uncle Sam the 15% has always seemed silly to me.

The only other primary method would be to somehow keep the TItle in her name until her passing --- sorry to turn the discussion so morbid.  But, that step up in basis upon death would eliminate the tax liablity.  of course, this technique isn't always feasible.

Hope that helps.  Happy to chat.  Good luck.

[Chris Seveney]

@Patrick Thomas Dickinson

What’s the gain. If more than $1M look into a deferred sales trust.

[Wilson Lau]

Depending on the size of her capital gains, there are a few ways to lower her tax burden if she is not in a hurry to sell the house. Deferred Sales Trust is a great way as @Chris Seveney mentioned.

[Robert Ruschak]

1) Consult with a professional tax accountant 

2) Primary residency: Single person pays no cap gains up to $250k, whereas it is up to $500k for a married couple . Live at the property for 2 years .