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DanielleCPA, Accountant
Category: Capital Gains and Losses
Satisfied Customers: 789
Experience:  CPA
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My motherinlaw gave her 250,000 coop to her son and my wife

Customer Question

My motherinlaw gave her 250,000 coop to her son and my wife seven years ago.she had purchased the Coop in 1965. She continued to live in it until recently when she had to move to an assisted living facility. The coop was recently sold with the proceeds being split between the two siblings.All parties are over 55, this is the second property sale for my wife, first one was a house 30 years ago. Her brother continues to own his own Coop.I understand the gift tax would only apply if the g8fting exceeded the $5 million mark?Bottomline question is who owes what far as capital gains are concerned??...Both households have current annual incomes under $100K
Submitted: 1 year ago.
Category: Capital Gains and Losses
Expert:  DanielleCPA replied 1 year ago.

Welcome to JustAnswer and thank you for your question. I am a CPA here and will work with you on your tax question. Please give me a few moments to answer your question.

Expert:  DanielleCPA replied 1 year ago.

Regarding gift tax, you are correct in that no gift tax will be owed. For 2016, gift tax does not apply unless gifts exceed $5.45 million. No tax will be owed; however, your mother-in-law will need to file a gift tax return (Form 706) because her gifts to both your wife and her brother exceed $14,000.

As the co-op was sold after your wife and brother-in-law took ownership, they are responsible for the capital gains taxes. Because it was owned long-term by your wife and brother-in-law, the preferential long-term capital gains rates apply. At the income level you describe would be no more than 15%.

Also keep in mind that for gifts, you use the donor's basis as your own cost basis for calculating the gain. So if, for example, your mother-in-law had cost basis of $50,000 in the co-op, the total gain would be $200,000 ($250,000-$50,000).

Your wife and brother-in-law would each pay tax on half the gain, assuming 50/50 ownership. Your mother-in-law does not owe any taxes on the sale because she does own the property.

Please let me know if you have any follow-up questions or need clarification. If this fully answers your question, please rate the answer to close out your inquiry. Thank you and have a wonderful day.

Customer: replied 1 year ago.
question...since both parties are over 55 could they have use the one time step up exemption of $125,000 in this instance?Thank you!
Expert:  DanielleCPA replied 1 year ago.

The one-time step exemption of $125,000 no longer exists. It was superceded by the 1997 Tax Reform Act. The gain cannot be excluded.

Expert:  DanielleCPA replied 1 year ago.

Hello, just checking in to see if you needed any further assistance. I will be happy to answer any follow-up questions you may have. If not, please rate the answer to close out your inquiry.

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