I've searched quite a bit on the GOOG machine but have found varying answers on this so I figured I'd come to the right place and ask...
My wife and I are in the process of becoming @Cris_Ard 's neighbor and buying my father in law's beach property (second home) right outside of Cherry Grove. As part of the sale - he is graciously providing us a gift of equity in the amount of what would otherwise be owed to him. The home has greatly appreciated in value (obviously) so what we are wondering is if he will have to pay capital gains taxes on the appreciation of the house even though he's gifting it to us in equity.
Here are fuzzy numbers to hopefully make sense of all of this. There is a caveat in that my FIL owns half of the house and an uncle owns the other half. The uncle will be taking his half in cash during closing.
Sale price: $650,000
Original purchase price: $385,000
Total net gain: $265,000
Uncle's cut: $185,000
Gift of equity from FIL: $185,000
FIL's net gain: $132,500
Will my FIL have to pay capital gains tax on the $132,500? I have read that the capital gains would be passed down to us when we (if we ever do) eventually sell the home. I have also read the opposite.
Can anyone explain this to me like I'm 5?
My wife and I are in the process of becoming @Cris_Ard 's neighbor and buying my father in law's beach property (second home) right outside of Cherry Grove. As part of the sale - he is graciously providing us a gift of equity in the amount of what would otherwise be owed to him. The home has greatly appreciated in value (obviously) so what we are wondering is if he will have to pay capital gains taxes on the appreciation of the house even though he's gifting it to us in equity.
Here are fuzzy numbers to hopefully make sense of all of this. There is a caveat in that my FIL owns half of the house and an uncle owns the other half. The uncle will be taking his half in cash during closing.
Sale price: $650,000
Original purchase price: $385,000
Total net gain: $265,000
Uncle's cut: $185,000
Gift of equity from FIL: $185,000
FIL's net gain: $132,500
Will my FIL have to pay capital gains tax on the $132,500? I have read that the capital gains would be passed down to us when we (if we ever do) eventually sell the home. I have also read the opposite.
Can anyone explain this to me like I'm 5?
