How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask T. R. Miller, The SunTaxMan Your Own ...
T. R. Miller, The SunTaxMan
T. R. Miller, The SunTaxMan, Public Accountant , Tax Preparer
Category: Tax
Satisfied Customers: 148
Experience:  30+ years in Public Accounting and Tax Preparation
4805
Type Your Tax Question Here...
T. R. Miller, The SunTaxMan is online now
A new question is answered every 9 seconds

PROPERTY TAX

Customer Question

IN 1958 MY GRANDFATHER BOUGHT A PIECE OF WATERFRONT PROPERTY FOR $1500.00. THE PROERTY SLOWLY TOOK ON INPROVMENTS...ROAD(DRIVE WAY),SUMMER CABIN, CARPORT. THEN YEARS LATER ELECTRCITY WAS ADDED. IN 1980 MY GRANDFATHER DIED AND MY MOTHER AND HER TWO BROTHERS WERE GIVEN THE PROPERTY AS A GIFT BY THIER MOTHER. THIS YEAR OF 2004 THEY HAD WATER BROUGHT TO THE CABIN AND THEY SOLD THE PROPERTY FOR $300,000.00. THIS IS TO BE SPLIT AMONG THE THREE OF THEM. WHAT TAXES OR DUES ARE TO BE EXPECTED? WE LIVE IN WASHINGTON STATE (ZIP 98221) THE PROPERTY IS ALSO IN WASHINGTON STATE. MANY FILING FEES HAVE BEEN PAID IN THE PROCESS OF SELLING. ALL THREE ARE OLDER THAN 65.
Submitted: 12 years ago.
Category: Tax
Expert:  T. R. Miller, The SunTaxMan replied 12 years ago.
I am assuming that in 1980, the "gift" was actually inheritance. If it was a "gift" not related to death, then the following several paragraphs DO NOT APPLY. I have addressed the issue of a "gift" later in this response.

In 1980 the appraised value, at the date of death, is the "cost" (basis) of this property, PLUS the costs of any capital improvements you have made in the intervening years - this would be improvements that increased or maintained the value of the property - NOT "repairs" ( for example, a "new" roof is a capital improvement, replacing "part" of the roof because of damaged, missing shingles, etc., is a "repair" not a capital improvement.)

In 2004 the sale price, $300,000 is used to compare to the "basis" in the preceding paragraph. Comparing these two figures will produce long-term capital gain, which will be split among the three of you. Each of you will report this on your Schedule D, attached to your 1040 for 2004 and pay tax on that gain.

The "filing fees" you mention and all other costs of the sale will be used to increase your "basis" in the property before comparing basis to sale price.

IF THE PROPERTY WAS INDEED A GIFT, AND NOT INHERITANCE, then the "basis" in the property is the lower of (1) the cost, plus capital improvements, on the books of Grandfather, or, (2) the fair market value at the time the gift was made, WHICHEVER FIGURE IS LOWER. This figure is then used to compare to the $300,000 sale price.

I am hoping that the transfer of ownership to your Mother and her Brothers was indeed as an inheritance, and not as a "gift" as you describe above. I suspect, as a gift, you will have much more gain and much more tax to pay on the property.

If you have any further questions, please contact me.
Expert:  Jon Andrews replied 12 years ago.
Just a follow-up to SunTaxMan's post. As I understand the transaction, your grandmother inherited the property from your grandfather and then gave the property to your mother and her brothers. If that is the case, the basis will be the fair market value at grandfather's date of death because that became grandmother's basis when grandfather died.

One additional issue to consider is whether or not any gift tax returns were filed relating to the gift from grandmother to your mother and her brothers. I believe that the anuual gift limit (non-taxable) in 1980 was $3,000 per person. So if the property was valued at more than $9,000 when grandmother gifted it, there should have been gift tax returns filed.
[email protected]
Expert:  T. R. Miller, The SunTaxMan replied 12 years ago.
Customer

Jonacpa brings out a good point that I missed.

If indeed Grandmother "inherited" the property at Grandfather's death, and then gifted the property to three people, this does affect basis, but I disagree with Jonacpa a little.

I am assuming Grandmother and Grandfather, owned the property together. This means at Grandfather's death, Grandmother inherited half of the property - she already owned her half. The "basis" in the property has a little complication to it. The half that Grandmother owned prior to Grandfather's death carries HER basis - her half of the original cost, plus her half of capital improvements made from the date of purchase to the date of Grandfather's death. The half that Grandmother inherited from Grandfather has, as Grandmother's new basis in that half, the Fair Market Value - the appraised value, on the date of Grandfather's death.

IF THE PROPERTY WAS INDEED GIFTED TO your Mother and two of your Uncles, this combination figure is the basis figure you need to use to compare to the $300,000 sale price.

I realize this may sound extremely confusing, but to our minds it is a very organized progression of thinking. If you need further help with this, feel free to contact me or just ask further questions.

And YES, the absence or presence of Gift Tax Returns at the date of transfer from Grandmother to your Mother and Uncles IS indeed a significant factor in the situation. Do you know if Gift Tax Returns were filed?
Expert:  T. R. Miller, The SunTaxMan replied 12 years ago.
And now we need one more clarification. Jonacpa reminds me that Washington is a "community property state." This means that at Grandfather's death, Grandmother's half of the "basis" in the property is the SAME as Grandfather's. Grandmother's basis is NOT her half of the original cost plus improvements.

Sorry for the misinformation. I realize this may confuse you even more. If it does, let me know. We can start over with an explanation that should help.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Previous | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    577
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    577
    10 years experience
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    1245
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3882
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg Robin D.'s Avatar

    Robin D.

    Senior Tax Advisor 4

    Satisfied Customers:

    11072
    15years with H & R Block. Divisional leader, Instructor
  • http://ww2.justanswer.com/uploads/YI/yirtual/2015-3-12_43754_egan.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    8621
    Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2884
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Enrolled Agent

    Satisfied Customers:

    1837
    Over 20 Years experience