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Lane
Lane, CFP, MBA, CRPS
Category: Tax
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Experience:  Providing Financial & Tax advice since 1986
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I would like to ask Randalltax a new question. This is a tough

Resolved Question:

I would like to ask Randalltax a new question. This is a tough one. I have two friends -
Friends A and B -
Friend A quit-claims his home to Friend B, valued at about $95,000. Friend B quit-claims his home and adds Friend A to the deed in exchange for the $95,000 home - Friend B's home is valued at about $160,000 (about half would be worth $80,000). Friend B feels this is a like-kind exchange. Now, Friend B sells the home he received from Friend A for $125,000. It sounds to me like a gift from A to B and he would need to file a Form 709 for the gift tax - and then B needs to report the sale of the home he received.

Any help would be appreciated very much.
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D :

Hello and thank you for using Just Answer,
Randall tax is not online (experts have no set time to be on Just Answer) so Just Answer put your question out to all tax experts so you would not have to wait.
Friend B has purchased a portion of Friend A's property. Friend A has sold a potion of their property.
This arrangement would not qualify as a like kind exchange because it is personal use (their homes) in nature and Sec 1031 prohibits personal use such as homes.
I do not see any gift in any of the transactions. These are all sales and the value received for the sal ewould be used in reporting.

Robin D :

If you prefer to wait for the requested expert, please do not rate my response. I will simply opt out and when the expert is back online they will reply.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 6 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Since these first two exchanges are individual homes they do not have to report a sale as they did not make a gain of $250,000. Only the last sale has to be reported as it was an investment property at that point and not a personal residence.

Expert:  Robin D. replied 1 year ago.
That is correct. If no 1099S was received then an individual does not need to report the sale of their main home if they are allowed to exclude gain or they have a loss.
Customer: replied 1 year ago.

Thank you for verifying what I thought to be true. Good Service.

Expert:  Robin D. replied 1 year ago.
You are most welcome.
Customer: replied 10 months ago.

Hi again, Since I didn't have all the information the first time, I have a new twist and question to this puzzle. Friend A jointly owned a home with his uncle after being added to the property years ago, and now due to death becomes the full owner. This home is not the primary home for Friend A.


 


How does Friend A figure his cost basis? Does he use the stepped-up value of the home in figuring whether there is a gain or loss when he quit-claims the home to Friend B.


 


Friend B is adding Friend A to his home to equal 1/2 ownership in exchange for Friend A's home. All very confusing. Friend A did not receive a 1099S from the quit-claim transfer to Friend B.


 


Friend B will sell the home he received in the exchange and will have to pay


tax on any gain he makes.


 

Customer: replied 10 months ago.
Relist: Other.
I was satisfied with Robin, I just have another question to add to the problem. I would want someone to answer that can look at the previous sessions I had with Robin on this same topic.
Thank you.
Expert:  Lane replied 10 months ago.


Hi, don't see Robin coming back in so I'll answer that last question:

You said "How does Friend A figure his cost basis? Does he use the stepped-up value of the home in figuring whether there is a gain or loss when he quit-claims the home to Friend B."

Yes, you have it. When someone receives an asset as a result of inheritance, their basis is the fair market of the asset (or the interest they received in it, say, if it were split among more than one person) as of the date of death of the person leaving the asset.

And as you've already discussed GIFTS are different. When a gift is received, the basis of the receiver is the carryover basis (the basis that the person giving the gift had in it).





Using those two basic premises, you should be able to put it together.

Gifts have the basis of the giver carried over (It follows ... becomes the basis of the receiver of the gift).

INHERITED ASSET are stepped up in basis,. The person receiving an asset in this way has a basis of the asses as of the date of death of the person leaving the asset.



Hope this helps

Lane



Customer: replied 10 months ago.

So are you saying he can use the full stepped-up basis and not the 1/2 step-up

basis for joint ownership?

Customer: replied 10 months ago.

Thanks for the info. I thought so on the stepped up basis but wasn't sure since


he was part owner.

Expert:  Lane replied 10 months ago.


I can't understand from your first example what, exactly, is going on.

But if you reduce the analysis to AN INTEREST in something ... (whether it's half or full or 1/3) ... then you look at how THAT INTEREST was received to know what the basis is IN that INTEREST.



If I buy a piece of land with by brother (and let's say it's jointly) and my brother dies (and in joint tenancy I am an heir to his half), then I now have a two different bases in the property;

In 1/2 of it, I have my purchase price and in the other half I have a basis of whatever the value was on his date of death.

So let's say we bought for 100,000 (that gives us each as basis of 50,000) and when he dies its worth 200000, ... I now have a basis of 50,000 PLUS the 100,000 basis that was left to me; $150,000 in the property.

NOW, if he had gifted it to my (by quit-claim or any other re-titling, AND I gave him nothing for it, making that a GIFT, then my basis would be 100,000 (my original basis plus his original 50,000).



So, if I sold the property for $300,000 the result would be the following:

... a $150,000 gain, if he had died and left his 1/2/ to me.

... a $200,000 gain, if he gifted it to me.


Think about it this way ... each person does their own taxes, so what matters is not the basis in the asset, but rather that PERSON'S basis in the asset .. based on how much of it they own.

Hope this helps

Lane

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3695
Experience: Providing Financial & Tax advice since 1986
Lane and 6 other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.


Thanks for that!

Glad I could help.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane

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