Legal Question in Real Estate Law in Massachusetts

Re: How much do I owe?

From your message it is not clear if your parents actually deeded the property to you or just "gave" it to you unofficially, in which case it is technically an unperformed gift.

In either case, the basis, or cost, of the property remains unchanged. The capital gain from selling the property will be the difference between the basis and the sale price. The taxes will be paid by the title owner of the property. If the title owner is you, you may be able to take advantage of a capital gains exclusion. If the title is in your parent's name, they will have to pay the taxes. A solution may be for them to complete the gift and deed the property to you before the sale. This might have adverse tax consequences depending on the value of the property. I would recommend that you consult with an accountant before selling the property.

Re: How much do I owe?

You've left me a lot of work, to answer these questions! You will have capital gains on the sale of the house equal to the difference between the sale price ("proceeds") and your cost basis. Your cost basis is the amount you paid PLUS what you've put into it (your development costs) as capital improvements (e.g., the building but don't try counting the oil, gas, electric or mowing the lawn).

So, you would have capital gains. Are you married? You and your wife are entitled each to a $250,000 exclusion on capital gains each time you sell your primary residence. To qualify, you must have lived in (resided in) the residence for at least 2 full years within the last 5 years. If that's enough to cover your 'profit', the capital gains is thus not taxable.

If you have taxable capital gains, these gains are taxed at the maximum mid-term ( > 1 year, < 5 year holding period) capital gains tax rate which I believe is 20% now. [ Check with your tax advisor! ] If you have little or no other income, you might even come in a little lower for your capital gains, but for planning purposes, that's usually the figure to use. (5 year property maxes out at 18%; when did you develop? Is it worth the 2% to hold off for a year? Probably not.)

Whose name is on the deed? If your parents GAVE you the land, then presumably it was either worth less than $40,000 ($10k per donee per donor) at the time or else they filed a gift tax return (no tax due, but the return is required). But it might not be too late to file that return; the value of the gift is not taxable to you (nor to them!). Lawyers usually file those late returns instead of accountants. (I'm available!)

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Re: How much do I owe?

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However, it sounds like the land is still deeded to them. You need to consider whether to deed it to yourself before you deed it out to the buyer. (I can also

Theoretically the improvements to the land (i.e., the building) become part of the land and you could theoretically lose your improvements and they'd be the property of your parents and the sale proceeds would be income to them ... but all this is getting a little bit far afield and I have too little information to advise you.

Another consideration is whether your parents have / will have a taxable estate for federal estate (F.E.T.) and gift tax purposes. If their total worth including the face value of their insurance policies, all their land, IRA's, stocks and bonds, cars, collections, bank accounts, etc., is less than $500,000, you might be in the clear. Otherwise, you ought to consider how to minimize the value of their gift to you so as to not use up their two lifetime F.E.T. credits (which equate to about $700,000 EACH if they've done proper estate planning, otherwise to only $700,000 TOTAL).

It's also possible that you have children of your own and you (and your wife) will have taxable estates and may not wish to use up your credits by making what could appear to be a gift to your parents (the childrens' grandparents).

All in all, you ought probably to consult your local estate planning attorney or an experienced accountant or estate planner, or else write to me directly with considerably more facts.