Thank you for following up. There would be no tax on the gift, and since the property was already gifted to your wife, there is no tax related to the house upon her mother's death.
If she were to gift the house, there would be no tax. If you make a gift to a spouse, there is an unlimited gift exemption. A gift to anyone else would also result in no tax. New York does not have a gift tax
. And, on the Federal level, eecipients 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.
If you sell the house, because it was gifted during your mother's life, the basis of the property would be her mother's purchase price plus all improvements made by mother and by you guys. You would have long term capital gain equal to the sale price (less closing costs) in excess of your basis. For 2013, the tax laws
of long term capital gains are as follows:
0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.
In addition, starting in 2013, capital gain income will be subject to an additional 3.8% Medicare
tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.
If you rent the property, you would pay tax only on the net income. Thus, the $1100/month would be reduced by property taxes, insurance, repairs, HOA fees, and other expenses related to the maintenance of the property and renting the property. You would also get to reduce the income by deprecation of the basis of the improvements (the basis of the land would have to be excluded from the overall basis)..which is a non-cash outlay. Thus, you would only incur tax on the net amount you end with.
Under my terms of service, I'm only allowed to communicate through this forum, but you have a Share button on the bottom right of your original question box, and if you hover over it with your mouse, one of the options is email. So, I have provided the form below. Also, you can block, copy and paste the form I've provided below. I'm sorry about the extra trouble for you!