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Jason M. Tyra, CPA
Jason M. Tyra, CPA, Certified Public Accountant (CPA)
Category: Capital Gains and Losses
Satisfied Customers: 177
Experience:  Principal at Jason M. Tyra, CPA, PLLC
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If my parents gave me a house $0 gift on nov 2015 and i sold

Customer Question

if my parents gave me a house $0 gift on nov 2015 and i sold the house on 2016. what would be my capital gain and how much would i be taxed on if the value of the home on nov 2015 was $189k and the house was sold for $395k. i believe that is consider a short term gain and will be tax at a high amount and can i use all the 2015 expense for remodeling the home to make it at a higher value to apply to my 2016 taxes, since i make about $55k a year for 2016 would i be on a higher tax bracket and end up paying more tax. can i use some of the gain to pay off my current house which i live for 4 years and use to as a deduction to lower my capital gain.
Submitted: 7 months ago.
Category: Capital Gains and Losses
Expert:  Jason M. Tyra, CPA replied 7 months ago.

Hi William:

When you acquire a piece of property by gift, you take a carryover basis from the person who gave you the gift. This means that even though the value of the house was $189k back in November, your basis could be lower if your parents paid less than that amount for the house. Basis is adjusted by the value of improvements (adds to basis) and the amount of any allowable casualty losses or depreciation (reduces basis).

In your case, your capital gain would be as follows:

Selling Price - Adjusted Basis of House in Parents Hands - Cost of Improvements = Capital Gain

You would have a short term gain on the property, since you held it for less than one year. The gain would be taxed at the short term gains rate, which is the same as the ordinary income rate.

Your gain would place you in a higher marginal tax bracket, yes. Using some of the proceeds to pay off your current house would not reduce your gain, but you may qualify to defer some or all of the gain under Section 1031 if you use the proceeds to buy another house (a so-called "1031 exchange").

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