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Your mom will pay tax on the difference between the sales price of the land and house and what she paid for it. She will be able to exclude $250,000 of gain because it is her primary residence.
I was afraid of that. She is 78 and may not live too long. Is there a way to pass ownership on to avoid taxes and turn it into an inheritance to reduce taxes?
She can include in her basis the cost of land, plus the cost to build her house. She can also add to the basis any major repairs she had over the years, such as adding a new roof, etc
Ok - thanks
John, You mentioned if your mother can gift the house or do anything to avoid taxes. You would be better off from a tax perspective if you inherited the property after her death. You would receive a step-up basis in the home and land, equal to fair market value at the date of death. If she gifts it during her life, your basis is equal to her basis. Inheriting the property will save money on capital gains tax
Also, I didn't catch the caveat that your father passed away. When this happened, your mother got a basis equal to 1/2 of the cost of the land/house and the other 1/2 being the fair market value at the date of the death of your father. So, with the cost of land being flat, you would have a basis in each acre of $7,500. This is $1,250 being the cost basis of your mother's half and $6,250 being the fair market value at the date of your father's death. IF you do the calculation, with the exclusion, your mother's gain would be minimal. I'm sorry I didn't catch that while we were in chat.
You can CLICK HERE to read about step up basis.
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