Alternative minimum tax
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Question
How do I figure capital gains and state tax on the sale of a vacation home in Michigan?
I purchased a vacation home from my grandparents in Michigan in 2001 for $60,000 (Probably $150K under the market). I have made some small improvements to the property (approx $10K). My wife and I have never declared this as our primary home. There is an estimated $10K in personal property being sold in this transaction. I am in the process of selling the property for $370,000. I want to make sure that I hold back enough funds for all the tax consequences that we will see in the next year. I am curious if I have to pay income tax in Michigan or my home state? How would this sale affect our federal filing? Capital Gains, Alternative minimum tax?? How much do you think we should save back for Uncle Sam?
3 months ago - 2 answers
Best Answer
Chosen by Asker
Why don't you do a IRC 1031 exchange. You need to ID the property you wish to acquire in 180 days from the date you opened an escrow. In this 1031 you need a reputable title company or if in Michigan,a good real estate attorney. Then the last two years of the five, you can make the acquired property as your principal home. Just complete the front and back of the 1040 sch D and you will figure your cap gain tax. See if you can sell the house under an installment sale since you can spread the cap gain on the principal over the life of the note and thus pay the cap gain tax in cheaper dollars (see form 6252) For alt min tax complete form 6251
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3 months ago
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Other Answers
Since you can't pack up the vacation home and take it with you, it's taxed in MIchigan. Since you are not a resident of that state, you home state will tax you too (with a possible credit on the taxes paid to Michigan). The *best* way to handle this is to get a copy of the 2008 tax software and pretend you sold it last year. For a capital gain of $290,000, you can afford to have an accountant run the numbers. Note, the capital gains rate for the IRS is 15%, but due to AMT, the net effect is that your taxes will go up more than that. (The LTCG rate is honored under AMT, but the rest of your income loses the lower tax brackets of 10% and 15%.) Vacation homes are NOT eligible for 1031 exchanges.
by v b- 3 months ago