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Richard
Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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My dad bought a foreclosed house about 4-5 months ago, all

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My dad bought a foreclosed house about 4-5 months ago, all cash for me to live in as I go to school, (I'm 20 and this is all in Texas). He paid $55k for it and put in about $30k in repairs. The house has an estimated value of $107. If my dad gifts it to me, how much does he or I have to pay in gift taxes. Alternatively, If he sells it to me for $85k, does he have to pay capital gains since he technically didn't gain any money?
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. If he sells it to you for what he has in it, there will be no gain and thus no tax. If he gives it to you, there should be no tax consequences either. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000 in a year, each person has a $5,250,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,250,000 in gifts over and above the $14,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,250,000.



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Customer: replied 3 years ago.

Ok, that makes sense, lets say he does gift it to me (are there any other taxes associated with the gift?) And so I get a $107k house, and he pays no taxes on it. If I decide to sell in say 7 years, do I pay capital gains on the amount the house has appreciated from $107k or the full amount because I technically didn't put any money down?

Thanks for following up. There would be no other tax issue from the gift. Your basis would carry over from your dad...so, your basis would be the $85k he has in it. Then, if you sell it, you would have gain equal to the sale price (less the closing costs) in excess of your basis ($85k). But, if it's your principal residence for at least 2 of the preceding 5 years before the sale, you have a capital gain exclusion from the sale of principal residence of up to $250,000 ($500,000 if married), so you would not have any tax unless the gain was in excess of the amount of the exclusion.
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