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My elderly father is incapacitated. My sister has power of attorney, and she and I would like to sell the family home. What are the tax consequences of such a sale, and who should report the sale and pay the taxes?
Since your father is still alive and is still on the title, your father would report this sale. In your question, you did not mention that there was any gifting from your father to you or your sister. So I am assuming that your father is still the owner of the property. As your father is incapacitated and your sister has power of attorney, she may consummate a sale. The sale would be reported on your father’s return. The taxable gain on the sale would be calculated as follows:
A. Sale price
B. Less selling costs, such as commissions
C. Less cost basis. This would include the original cost basis plus any improvements that were paid for during the time of ownership.
D. Home exemption. Single taxpayers have a $250,000 exemption, while married taxpayers have a $500,000 exemption on the sale of personal residence.
If the calculations result in a net gain, your father would pay taxes at the long term capital gain rates, which could be as low as zero or as high as 15% depending upon what other sources of income your father has. Assuming that you are a California resident, he would also have to pay state taxes.
If the calculations result in a net loss, your father could not offset the loss on other income, as there is no allowed loss on the sale of a personal residence.
Rob Seltzer is principal of Robert Seltzer, CPA, PFS, in Beverly Hills. You can reach him at (310) 278-9944(310) 278-9944.
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