Q:

Subject: Question

 

Kerry,

I am trying to find out if I can claim the exclusion for primary residence ($500,000 for 2 people) in the case where we are selling our home as a fractional. In our case, we would sell 5 shares and keep the 6th.  Our profit would well exceed the $500,000. We would likely deed over the first three simultaneously and then the 4th and 5th would deed over at a later time. 

 

Do you have any info or advice that you could lend?

Thanks in advance. By the way I found you through a Google search.

A:

It should be possible to achieve your goal of utilizing the $500,000 tax free exclusion for the sale of 83.33% (5/6) of your home.However, there are a number of technical aspects that need to be addressed, which means that you need the assistance of both qualified legal and tax professionals.  If you try to handle this on your own, you could very easily screw it up.
 
Some of the issues you need to address with your professional advisors should include the titling of the shares on the house (individual names vs. a separate entity), as well as whether they will represent actual current ownership or a future remainder interest.  If a remainder interest is involved, a sale to any related parties will not qualify for the tax free exclusion.

You mentioned selling at different times.  If the sales take place in different tax years, this could possibly jeopardize your ability to use the tax free exclusion on more than one 1040.  Again, you should discuss this aspect with your personal tax pro

You should also understand that if you do utilize the full $500,000 tax free gain on the sale of 5/6 of the home, you will not be eligible for any tax free exclusion when you sell the remaining 1/6th share. 

You will also need to work with your  personal tax pro to allocate the cost basis of the home to the portions being sold and the one being retained. 

Good luck.

Kerry Kerstetter

Follow-Up:

kerry,

Thank you for responding to my inquiry regarding the fractional sale of my home. This was helpful. 

Preserving a Donor’s Intent

Interesting dilemma.  Technically, you are not allowed to attach strings to deductible charitable gifts.  However, you assume the charity will use it according to its guiding principles and not in some way contrary to that.  Of course, we see these kinds of problems a lot over time, such as with foundations originally funded in support of capitalistic principles using their money to support leftist causes (Ford Foundation, et al).

The insatiable need to steal money from other people may be a lifelong illness for many of our rulers.

From a reader:

Subject: Re: Inflation Adjustments To Capital Gains

Many thanks for the link to the Capital Gains Index pdf file.

This is Henry Paulson’s chance to leave a real legacy at Treasury; it could be backed up by Ben Bernanke who made a good case for the necessity of raising the national saving rate to help offset the looming entitlement disaster.

The Coming Demographic Transition: Will We Treat Future Generations Fairly?

 

Indexing cost basis would encourage more saving via lower tax rates. ( I can almost hear certain Senators supported by the MSM howling about how indexing would benefit the eeeevil rich plus how the government is going to lose so much of our money.)

 

 

I received the following email this morning:

Subject: CapGains Indexing – Legal Brief

 

Hi Kerry:

 

Pete Sepp with National Taxpayers Union here; we corresponded several years ago about a legal brief that our foundation helped to prepare on how the President could order capital gains indexing without an act of Congress. You had expressed interest in seeing an online copy. Just thought you’d like to know that we have FINALLY been able to scan and post the whole 90-page document on our website. I invite you to check it out at:

 

www.ntu.org/pdf/CapGains_Index_92.pdf 

 

Enjoy! Pete

Pete Sepp
V-P Communications
National Taxpayers Union
703-299-8667
pressguy@ntu.org

I wrote back:

Pete:

Thanks for passing that along.  I’m also glad to see that you posted it to the Latest News section of your website.

I have been assuming that the conclusion reached back then is still the same now and have been hoping that Bush 43 can be more forceful on this issue than his father was and not rely on official legislation to enact this COLA indexing.

I wrote about this most recently a month ago, but will update my website and blog for this new pdf file.

Thanks for keeping me in the loop.

Kerry Kerstetter

I have since updated my website page on this topic to include a link to the new PDF version of this report.

Experts Say Retirement Portfolios Should Include Real Estate – Sounds familiar. Real estate is so much more reliable (as a tangible asset) and less volatile than are stocks.

From a reader:

Subject: IRS joke

From Jay Leno, about those two weeks in July when the  Dodgers forgot to win:

“[That’s] 11 losses out of 12 games. In fact, today the IRS said they would no longer let the Dodgers deduct their bats as a business expense.”