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My 94 year old widowed mother wants to sell her house. Her only income aside from Social Security is a $150/month retirement check from a job she had years ago.

How much, if any, capital gains tax will she have to pay? The house cost less than $70K when built in 1953, and she is being offered $615,000.

  • It might also be reduced by taking into account the stepped up value that she inherited when her husband died. Also was there any additions made to the house? Garage, pool, finished basement? – mhoran_psprep Jul 29 '13 at 2:32
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    Gosh, do you have to pay CGT on your primary residence in the US? I didn't realise that (in the UK your primary residence is exempt). – Vicky Jul 29 '13 at 12:02
  • @Vicky unfortunately yes. There's an exemption but it is limited. Since the US is a consumer driven society, the tax code encourages you to sell your home frequently to avoid CGT. – littleadv Jul 29 '13 at 17:14
  • Interesting... if you adjust the 75k for inflation it looks like the value of the home has gone down, not up. – Andy Dec 30 '14 at 2:16
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What it means is that almost all of the taxable income will be capital gains, i.e.: 20% tax rate (+medicare on the gains above $200K). It will also probably drag the Social Security payments into the taxable income (at least partially), but most of the tax would be for the house.

I suggest checking with a licensed tax adviser (EA or a CPA licensed in your state) for a more precise simulation, and also to explore potential exemptions, deductions and potentially capitalize-able expenses. Check into capitalized renovations and other capital expenses on the house, primary residence exclusion, potentially stepped up basis since her husband passed away as @mhoran_psprep mentioned, etc etc. A decent professional adviser will definitely help you identify all the points.

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