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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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My siblings and I will be selling our Mom's house which was

Customer Question

My siblings and I will be selling our Mom's house which was deeded to the three of us before her death. It has been two years since her death and we are ready to sell. I understand we will have to pay taxes on the sale however I am not sure on what amount we pay taxes on. I have read online about adjusted basis however the home is at least 60 years old so at best it would be a guess. I also understand you add improvements over the years and I read about figuring in the FMP. I am at a lost at this time and any guidance would be appreciated. The home is located in South Carolina
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.
Can you verify is the house was ever inherited?Or it was owned by your mother only when it was purchased 60 years ago?
Customer: replied 9 months ago.
My parents built the house with my father doing much of the labor
Expert:  Lev replied 9 months ago.
And your father's name was on the title - correct?Is he alive? If he passed away - when?
Customer: replied 9 months ago.
Before he passed he put the house in my mother's name
Customer: replied 9 months ago.
You still with me?
Expert:  Lev replied 9 months ago.
Ok - so the house was never inherited...Following is the primary publication fro basis determinationhttps://www.irs.gov/pub/irs-pdf/p551.pdfpage 3 left columnConstructing assets. If you build property or have assets built for you, your expenses for this construction are part of your basis. Some of these expenses include the following costs.Land,Labor and materials,Architect's fees,Building permit charges,Payments to contractors,Payments for rental equipment, andInspection fees.NOTE - Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct.I understand that it might be not a simple task to determine all these costs after 60 years - so do your best estimate and be reasonable..Then - we will talk about adjusted basis - you must usually make certain adjustments to the basis of the property. The result of these adjustments to the basis is the adjusted basis.page 4 The following items increase the basis of property.The cost of extending utility service lines to the property;Impact fees;Legal fees, such as the cost of defending and perfecting title;Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements;Zoning costs; andThe capitalized value of a redeemable ground rent..See also Table 1 BasisIncreases to BasisCapital improvements:Putting an addition on your homeReplacing an entire roofPaving your drivewayInstalling central air conditioningRewiring your homeetc.So when you come up with the adjusted basis - we may estimate the gain.
Customer: replied 9 months ago.
Thanks
Expert:  Lev replied 9 months ago.
The next transaction is gifting.
Expert:  Lev replied 9 months ago.
When you wrote - house which was deeded to the three of us before her death - I woudl classify that as a gift.Same publicationhttps://www.irs.gov/pub/irs-pdf/p551.pdfpage 8 - Property Received as a GiftGeneral rule is that the basis of gifted property is the LESSER of (1) donor's basis and (2) the FMV at the time of giftingThus - that most likely will be your mother's basis as we described just above...I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.