CAPITAL GAINS TAX AND IRA
Hello again,
I emailed you last month regarding my husband and 7 of his siblings inheriting from their mother 4 vacant lots, which they sold. She died in 1996. The closing date was Feb. 15, 2008. My husband died Feb. 19, 2008. His share was $30,189. Our joint return for 2008 will be about $12,000. (I am retired and have included in the $12,000 my survivor benefits, his last 2 disability checks, and my small pensions.) I live in Texas—- will there be capital gains tax ? How will this be figured? Will it be from the value of the lots at the time of her death? I need more clarification to understand this situation. I also inherited his 401K that I rolled over to a traditional IRA. How will my IRA affect my taxes? I appreciate your help in this matter.
Permalink Submitted by Alan Spross on Wed, 2009-01-07 22:52
Because the lots were sold prior to your husband’s death, any gains on his share of the sale must be reported on Sch D of your joint 2008 return. You will need to determine the value of those lots at the time his mother passed in 1996, and the amount of gain would be the amount his share of the proceeds from the sale exceeded the value of 1/8 of the lots value in 1996. The gain would be long term, but would not incur a tax if your joint taxable income for 2008 remained in the 15% or lower bracket. But you must report the sale even if you would not otherwise have to file a return, because the IRS has no idea of how much the gain could be, so they assume the entire proceeds are taxable if they do not get a return with the sale reported on Sch D.
With respect to the 401k, if you did a direct rollover in which there was no tax withheld, there will be no tax on the rollover, although you will get a 1099R showing the rollover and it will need to be reported as a rollover on line 16 of Form 1040. Under both 401k or IRA accounts, required distributions must begin at age 70.5. I would need to know his age at death and your age as of 12/31/08 to know whether there are any RMDs that need to be taken. There is NO tax until funds are taken out of the IRA. I also need to know whether you are listed as the owner of the IRA or listed as the beneficiary of your husband. Most likely, you are listed as owner.
Please advise by continuing this post rather than starting a new one. Thankyou.
Permalink Submitted by Cecilia Ramirez on Wed, 2009-01-07 23:40
Yes, the 401K that I inherited from my late husband was rolled over to an IRA, and is in my name.
Permalink Submitted by Alan Spross on Wed, 2009-01-07 23:48
No tax on the IRA funds until you take distributions. Your required distributions start no later than 4/1 following the year you turn 70.5, however, there is NO RMD required for 2009, as it have been waived by the recent tax legislation.
Permalink Submitted by Cecilia Ramirez on Fri, 2009-01-09 19:37
I am getting back to you with new information regarding the value of the 4 vacant lots in 1996. (This is in regards to my husband and 7 of his siblings inheriting the 4 vacant lots in 1996, and selling them in 2008. The closing date was February 15; my husband’s share was $30,189.)
I called the appraisal’s office here in Houston, and they gave me the values of the 4 vacant lots in 1996—–$$28,900. Do you need to know the amount they actually sold for? By the way, my husband was 62 1/2 yrs old when he died in February 19, 2008, and I turned 60 in July, 2008. Please answer at your earliest convenience. Thank you very much.
Permalink Submitted by Alan Spross on Fri, 2009-01-09 22:37
Is 28,900 your husband’s 1/8 share of the 1996 value or is it the full value? You would need to report on Sch D only his net proceeds (apparently 30,189), and his share of the 1996 value.
In other words, these lots either appreciated very little or they appreciated 700% or so.