About the author:

Terry I. Weberman, The Kabinet CPA

Terry is a Certified Public Accountant in the New York Metro area with experience working with businesses and individuals across all backgrounds. He writes articles for the Kabinet blog and is here to help you on your home ownership and/or investing journey. Ask Terry a question by sending an email to info@kabinet.com and put “Terry CPA” in the subject line. This is a complimentary service as part of Kabinet’s commitment to you!

An aerial view of New York City

I was recommended to three siblings who owned a New York City co-op apartment that they sold for $10 million, but they had no idea what their costs were! They had no records to prove the original purchase price, or any improvements to the property at all which is crucial when it comes time to pay taxes!

Background

The property inherited was purchased by their father some 40 years before.

The property had been gifted to the children (three siblings) in contemplation of medical expenses and the obtaining of Medicare benefits.

No one was interested in the cost of maintenance when their father was living since the plan was to “Just Sell it” when he died.

When the sale came, the usual conversation over my entire career took place. It starts with “Who cares about taxes, it’s all profit to us” and ends with “OMG I don’t want to pay a sh-t load of taxes!”

What happened

I was engaged to develop a set of records to determine the original purchase price and any subsequent capital improvements paid through the more than 40 years. That’s right, 40 years of no records! These expenses could have been either paid by the family, or the building managers that were reimbursed by the family through the years.

The ramifications are as follows- their tax rate would be 20% for capital gains to the IRS, 3.8% net investment income tax and 6.45% to New York State and 3.876% to New York City. That adds up to 34.126% for their profit, but in this instance, it was on the entire $10 million because they had no records and no proof of their costs!

To play devil’s advocate, let’s assume their cost and improvements were $500,000, very reasonable for a NYC apartment. Thus, they would have paid $170,630 in taxes on their own money, if that isn’t the most outrageous waste, I don’t know what is! If the cost turned out to be $1,000,000, also not unreasonable, a down the drain waste of $341,260. It could take a person even in today’s times 8 to 10 years of working for free to earn that much money.

For an inconsequential $49.99 a year, this family would have not only saved every penny of that amount, but goodness knows how much easier it would have been to manage the property!

The work was both fascinating and grueling. Tracking down contractors, several building managers, various governmental agency records, building permits and family member records.

Conclusion

I was able to document records that would stand up to audit scrutiny totaling $719,217 which saved the family $246,087. Even after my fee, they still saved over $ 200,000!

All of this could have been avoided for $49.99 with Kabinet and with proper record keeping over 40 years, they likely could have saved even more.

There was at least another $200,000 I couldn’t provide assurance for that would have saved them even more!

Kabinet isn’t about being an expert, it’s about keeping track of your information over time so you can hand it over to the right person when necessary.

Feel free to contact me for more information, it is gratis.

Note

Terry, The Kabinet CPA, has made every effort to ensure the accuracy of the information within this article was correct at time of publication. He does not assume and hereby disclaims any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from accident, negligence, or any other cause. Speak to your advisor to make sure you qualify for such benefits or opportunities. Do not rely solely on this abbreviated article, it is for informational purposes only.