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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11592
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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20 years ago I purchased a second home for a rental, but after

Customer Question

20 years ago I purchased a second home for a rental, but after 1 year I gave the house to my mother and father. I had paid it all off except 15000.00 and they put it in their name and finished paying it off. Mom and Dad died last month so my sisters and i got the house back. my question is we just sold the house for 120,000.00 do we have to pay capital gains on everything from 15000 to 120,000? My folks insisted that we put the house in our names about a year and a half ago, so our names are XXXXX XXXXX title. Even though my folks lived there, paid no rent it was in our name. Although they gave it to us as a gift are we liable for the gain.
Thanks
Wayne
Submitted: 3 years ago.
Category: Tax
Expert:  Lane replied 3 years ago.

Lane :

Hi Wayne

Lane :

Please don't shoot the messenger but, when a gift is given (as opposed to left as an inheritance) the giftee (receiver of the gift) gets a "carryover basis." the basis that the giver of the gift had in the asset

Lane :

DO realize however, that this came into play TWICE, in your situation

Lane :

their gift in the house is the basis that you had in it when you gave it to them

Lane :

So what you are getting back is essentially what you put into the house (purchase price plus any improvements you made before gifting it to them)

Lane :

The mortgage (although it WAS how funds were raised for paying for the house) doesn't really affect basis - unless maybe you deducted mortgage interest as a business expense while it was a rental ... the capital gains will be net sales price (sales price less selling costs, such as commissions) minus the basis (investment in the house.

Lane :

Now, if it was gifted back to you and your sister in equal shares (50/50) then you each have 1/2 of the basis in the house (again whatever your parent's basis was. which in this case, was the basis you gifted TO them) and will have a capital gain of your proportionate sales price (1/2) minus the 1/2 of the basis (again, because you originally gifted it to them YOUR original basis)

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Lane :

Let me know if you need anything else at all on this ...

Lane

Expert:  Lane replied 3 years ago.


Hi Wayne,

... just back checking in here, as I never saw you coming into the chat.

Again, let me know if you have any questions at all.

Lane