Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

Reply
Pioneer
Posts: 2
Registered: ‎04-09-2018

Sale of Gifted Property - Tax Impact

There's a good chance that my mother will be quit-claiming her trust deed in a second home - valued at about $150,000. For various reasons, I'm considering selling the home.

 

I believe the initial quit-claim constitutes a gift from her, and falls within the lifetime gift limits. But I'm flummoxed on how to handle the sale.

 

Obviously, there's a capital gains to recognize. But is the base amount the fair market value of the house when it is gifted (in other words, today's FMV of $150,000?). Or would I assume the cost basis of when the house was initially purchased?

 

And there's the rub - my mother and I are unsure how much the house was initially purchased for. For tax purposes, am I supposed to do my due diligence and find the paperwork associated with the initial purchase (to establish the cost basis), or is there a different means at my disposal?

 

I'm in California - and I would appreciate any insight and/or feedback.

Associate (Neighbor)
Posts: 212
Registered: ‎07-22-2014

Re: Sale of Gifted Property - Tax Impact

Hello, dickens1298, and welcome to the community.

 

You certainly have an involved question for a first question on the boards!

 

According to the IRS, you will need to know three things to calculate your basis in the house:

- your mother's adjusted cost basis (original cost plus the costs of any improvements made of the years),

- the fair market value (FMV) at the time of the gift, and

- the amount of any gift tax paid.

 

I'm going to guess that your mother's adjusted basis in the house is less than the FMV...which would mean that your basis in the house would be the same as hers is at the time of the gift.  (If I guessed incorrectly, it could get messy!)  If any gift tax was paid, you would add that amount to your basis.

 

Many counties have sale information online through either their register of deeds or treasurer's office - or would have paper copies, if the sale predates what they have put online.  (The county here in WI where I had to do some digging recently only has information back to 2012 available, although they are slowly expanding that.)

 

Hope that helps - and good luck with your research!

 

-kurt

Pioneer
Posts: 2
Registered: ‎04-09-2018

Re: Sale of Gifted Property - Tax Impact

Thanks, Kurt. I *think* I understand your explanation, but let me put some numbers behind it....

 

Let's assume the FMV is $150k. Let's also assume that it was initially purchased for $50k. There have been no household improvements of note.

 

So I assume that my cost basis is the initial purchase price ($50k), and I'll be looking at a cap gains of $100k (assuming we sell at FMV)?

 

Is that correct?

Associate (Neighbor)
Posts: 212
Registered: ‎07-22-2014

Re: Sale of Gifted Property - Tax Impact

Hello, dickens1298.

 

With the numbers you provided, you are correct - you would be looking at capital gains of $100K.

Household improvements could include all sorts of smaller things that might slip past your attention, as well as major items...upgrading windows and storm doors, for example, or a kitchen remodel to replace cabinets.

 

Keep firing questions at us if you run into any!

 

-kurt

Council Member
Posts: 516
Registered: ‎04-06-2016

Re: Sale of Gifted Property - Tax Impact

Be aware that household improvements should NOT include regular maintenance items.  Pp 8-9 of Pub 523 has good info on figuring your basis and what can and can't be included in your basis. https://www.irs.gov/pub/irs-pdf/p523.pdf

 

Karen