Complicated

This is complicated for me. Hopefully you will be able to help. I purchased my parents home in 2001 after a divorce in which my dad was still living there for 25,000 on a home equity loan. I had to pay my mom 6,000 off the top for her divorce settlement. A new roof was put on in 2002 for 6,000 and I've added a little bit here and there since then. My dad currently deposits 300/month into an account and I've paid the property tax/insurance since then. I bought this house as more of a favor because he was going to lose it with what they had set up with a balloon payment due. I am selling this house for 57,000 in April 2009. I have been Active duty military for the entire time or past 13 years. I currently live in in South Carolina and just purchased a home in 2008. I don't want to pay any taxes but don't know if I'm obligated to pay any or not. I so what can I claim to keep the taxes low. I have to pay 2,500 for an electrician to bring up to code prior to sale. I know what I paid to what I am selling for seems like a profit but I will break even on the sale due to realtor expense/closing cost etc....Need advice and help... thank you so much. pattensc@gmail.com

Fixious,

You are right, this is a mess. Many of us taxpayers charge ahead doing something and then we do not want to suffer the tax consequences when we are readyto get out.

It would be much better to determine the tax consequences BEFORE we get in.

Let me restate some of your facts:
- You purchased a home for $25,000, and were given a clear title to the property.
- You secured a home equity loan on your personal home (not this home in question).
- Since owning this house, you did some repairs and improvements.

What is not clear to me did you rent this home to your father?
Was $300 per month a fair rent for the home and it's location?
Was $25,000 a fair market price for the home when you made the purchase?
Or could your parents have sold the home for more money to another buyer?

If you were renting the house to your father, did you report your rental expenses and income each year?

You have a basis in the house of $25,000 plus the cost of repairs and improvements that were paid for while you owned the house. This is not straight forward, as improvements should have been depreciated as they age, like the roof is 7 years old! Maybe that comes into play in the selling price? Let's suppose that your basis ($25,000 plus improvements) comes to $42,000.
You can subtract from the $57,000 selling price the your costs of the sale. Let's say that is $7,000, so you have a net of $50,000 Your profit for this sale is your net sale price ($50,000) minus your basis ($42,000 = $8,000.

You would report this sale on Schedule D as a Long Term Capital Gain. This type of capital gain is taxed at a maximum of 15%.