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Merlo
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Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My mother sold me a house for 10.00 it was titiled to me

Customer Question

My mother sold me a house for 10.00 it was titiled to me   5 years ago. She lived in the house and it was written up she could stay there tell the day she died. I never paided the tax and all bills went to her. She has now died and I am wondering if I have to pay capital gains tax or is there a way to somehow say it was a gift. I had it titiled only for medicare protection.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
HelloCustomer

Do you plan on now selling this home or do you plan to keep it and live there?

Customer: replied 5 years ago.
We plan to sell it are residency is in Ca. the house is in Ark.
Expert:  Merlo replied 5 years ago.
Hello againCustomer

I am afraid that due to the way this house transfer was handled, the only way that you would avoid or reduce any capital gains tax is if you kept the home for at least 2 years and used it to live in as your main home.

Here is the problem with the way this was done. If you would have received this home as an inheritance, then you would have received a full stepped up basis in the home. What that means is that your new basis in the home would have been whatever the fair market value was of the home on the day your mother passed away. If you sell property shortly after it is inherited, then your selling price is usually the same or very close to your stepped up basis, so you really end up with little or no gain to pay tax on.

You did not receive this property through inheritance. Basically your mother gave you this home as a gift. Even though there was a sale price listed of $10, that is not conseuqential here. When you acquire property through gifting, the person receiving the gift retains the same basis as the donor. That means that your basis in this home is whatever your mother originally paid for this home, plus the cost of any capital improvements she may have made during the time she owned the home. If you now sell the home, you would owe capital gains tax on any gain you had from the selling price, less your basis. Since your basis is the same as your mother's original basis, your gain here will obviously be substantially higher than if you had inherited the property and received the stepped up basis.

Taxpayers who sell their primary residence can exclude $250,000 (or $500,000 if married filing a joint return) from any gain they have on the sale. To be considered your primary residence, you must have owned the home for at least 2 years and you must live in the home for at least 2 of the last 5 years preceeding the sale. You have owned the home for 5 years, so you meet the ownership part of the test. But to meet the "use" part of the test, you would actually have to live in the home for 2 years before putting it up for sale. If you did that, then when you sold the home you could exclude either the $250,000 or $500,000 from the gain before any additional gain would be subject to tax.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank youCustomer and let me know if you have more questions.

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Merlo
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25+ years tax consulting. Specializing in returns for US citizens living abroad