Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 12, 1990 TAG: 9003092537
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
We are both in our seventies. We want to sell, but we've been told the taxes we would have to pay are high. We have already spent around $5,000 fixing it up. We wanted to ask $79,000 for it. What would be our chances of selling without paying high taxes?
A: People who inherit assets such as a house do get a tax break although it doesn't equal the shelter of your primary residence.
Hugh Sawyer, a certified public accountant and certified financial planner, said your tax basis in the house is its value on the date of the death of the person who left it to you.
You have to determine the value on that date 15 years ago. Sawyer said to check the estate tax returns to find the figure. If the tax returns have been lost over the years, you should be able to find the value from the files of the commissioner of accounts in your locality. Your local circuit court clerk's office can tell you how to reach the commissioner.
You would be taxed only on the gain in value over the past 15 years. From that you would deduct that share of your $5,000 investment, which increased the value of the house.
The taxes on the 15-year gain should not be so heavy when compared with the value of the house.
Sawyer noted that Congress is considering a measure that, if it passes, would lower tax rates on capital gains sales. Whether you should wait on that possibility depends on how much you want the money now.
Another alternative is to structure an installment sale in which you, in effect, act as banker to finance the sale. You would receive installment payments on the purchase price plus interest.
This would spread out the income - and the tax payments - over a period of time and might possibly keep you in a lower tax bracket. You would have a stream of income and could get a higher interest rate than you can earn on a money market deposit.
There are risks in acting as banker, however. And at your age you may not want to take on a long-term commitment of this type.
\ A taxing loss
Q: In September 1986 I purchased 400 shares of Ensearch Exploration at $6,200. These shares were called, and I received 200 shares of common at $22.50 each, a total of $4,500 and a loss of $1,700.
Harris Trust Co. of New York issued a 1099B showing $4,500 as income reported to the IRS. A letter to the New York bank stated the $4,500 was correct but has no relation to the price I paid for the units originally. I see no reason why I should pay tax on $4,500 when there was a loss of $1,700. Can you figure this one?
A. Banks and brokers are required by the government to submit information about financial transactions. That doesn't mean the listed figure is the amount subject to tax - or even that it's taxed at all.
When you sell a stock, for instance, the amount of the sale is reported by the broker. But you are taxed only on your gain, if you had one. You're not taxed on a loss.
It's up to you to explain the situation on your tax return.
Harry Schwarz of H. Schwarz & Co., a Roanoke CPA firm, said the tax ramifications should be explained in the documents you received when the stock was called. Read those papers carefully.
Schwarz said he would guess the stock was called because of a buyout of the original company.
If there was simply an exchange of shares in that situation, he said, the transaction is probably not taxable. You would, in such a case, not have a gain or loss until you sell the shares you received.
But he emphasized that the tax ramifications depend on the type of transaction.
If you have a problem understanding the materials that you received, you should see a tax adviser.
by CNB