In 2008 my Dad died and my sister rushed my mother into putting her name on the deed of the family home. In 2011 my mom died so now my sister's name is XXXXX XXXXX name on the deed. She just sold the house. My Dad built the house in 1958 for $21,000 and put in a garage, pool, driveway, florida room, landscaping, cabanna, walkout celler doghouse and in 2008 the year he died the property was probabably worth @$400,000 ... my sister sold it for $298,000 but has to put title 5 in which she says cost $20,000 --- how do we figure capital gains?
reading the IRS publications 544, 551, 523
Hi, my name is XXXX XXX I'm happy to help you with your question today.
Your sister would receive a step up in basis upon your mothers date of death. Therefore, her basis in the property would be the amount the house was worth when your mother passed away.
You would determine the capital gain by subtracting her total proceeds ($298k) minus her basis in the property (value at your mothers death). Any capital would be considered long term capital gain and be taxed at 15% tax rate.
Please let me know if you have any other questions.
The house was worth more when my Dad died - economy and real estate fell flat. The house was appraised for @$320,000 at the time of the sale ...It sold for $298,000 but we needed to put in a title 5 which cost $20,000 ... which would really bring the price down to $278,000 it was not worth any more when my Mom died so what kind of figures are we talking? What is a step up in basis? Don't we deduct what the house originally cost my dad and subtract that figure figure from what was actually received at time of closing? (minus all the expenses of the $298,000 like title 5, closing costs, realtors costs etc?)
I am more than happy to pay for the answer when I actually get an answer. I don't feel that I have that answer yet? ..... My sister says she will probably have to pay @ $86,000 but I don't see that, do you?
Thank you for the additional information.
A step up in basis means that when your mother passed away the basis (cost) of the house was adjusted to be the market value as of the date of death. For example, lets assume your parents basis in the house was $50k ($21k original cost + $29 home improvements). When your mother died your sister received the house and her basis in the house increased from $50k to $320k automatically. This step up in basis is allowed by the IRS on all inherited property, so your sister does not get stuck with a huge tax bill when she sells the house your parents had been living in for many years.
So, if your sister sold the house for $298 and her basis was $320 she would have a loss on the sale of the house. However, she is not allowed to deduct the loss on the sale of a house. But she will not owe any capital gains tax.
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Thank you . . . just so I make sure I have it right, then I will gladly pay for your expertise ....
When my sister put her name on the deed in 2008 the house was worth @ $400,000 but it deteriorated without my father around and the house paint peeled off, the roof needed to be replaced, the plumbing in the bathrooms was leaking, the bathoom floor was caving in, etc. etc. and the real estate market fell out worse than it had in 2008 so the value of the house in 2011 was appraised at $320,00 and she sold it for $298,000, less than the appraised value, so SHE WON'T HAVE TO PAY ANY CAPITAL GAINS TAX????
Yes, that is correct.
OK.... THANK YOU ....... I WILL PAY YOU NOW
Certified Public Accountant & Certified Financial Planner
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