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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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my dad died in 1958 so my mom, brother, sister and I by court

Resolved Question:

my dad died in 1958 so my mom, brother, sister and I by court received 27.5 acers because my day and my uncle owned the property. 01/02/09 we closed on the property selling 25.45 acers for 205,000 dollars. My mom owned 1/3 ownership and my brother, sister and I owned 2/3 and my mom died in 01/2003 and left her part to us-leaving my sister 50% , my brother and I 25% each. Please explain to me how the outcome of this would be with the tax. If you cannot give me an answer to this question be explain how this would affect me.
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
Hello sugarbabe,

You would be subject to long term capital gains tax on any gain you had from the sale of this property. In order to figure your gain, you must first determine your basis (cost) in the property. Your gain is then the selling price less your basis.

When you inherit property from someone, you automatically receive a "stepped up" basis in the property, meaning that your basis would be whatever the fair market value (FMV) was of the property on the day you inherited it. You would then add to that the cost of any capital improvements you made to the property during your time of ownership.

In your particular case, since this property changed hands several times through inheritance, you will have to do several calculations to determine your basis.

The first would be going back to 1958 when you first inherited the property. You would need to determine what the value was of the property at that time. Your mother inherited 1/3 (33.3%) and you and your brother and sister each inherited 2/9 (22.2% each). So assume for example that in 1958 the property was worth $50,000. The new basis for each heir would be as follows:

Mother - 33.3% of $50,000 = $16,666.67
You, your brother and sister - 22.2% of $50,000 = $11,111.11 each

When your mother passed away in 2003, you would then have to refigure your new basis using the same rules. If the property at the time your mother passed away was worth $100,000, then her share of that property (1/3) was worth $30,000. When your mother passed away, the new basis for each of you is figured as follows:

Your sister - Take her original basis of $11,111.11 and add to that 50% of what she inherited from your mother ($50,000). Her new basis is now $61,111.11 and she now owns 38.8% of the total land.

For you and your brother - Take your original basis of $11,111.11 and add to that 25% of what you inherited from your mother ($25,000). You each have a new basis of $36,111.11 and you each own 30.6% of the land.

When you sell the land, you take the selling price less your adjusted basis, and you would owe long term capital gains tax on any gain you had from the sale. The gain would be divided among the 3 of you according to the percentage you each own. The long term capital gains tax rate is currently capped at 15%.

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Thank you.
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Expert:  Merlo replied 8 years ago.
Hello again sugarbabe,

I just realized that the numbers I used as an example in refiguring your new basis once your mother passed away are wrong.

The numbers I used were based on your mother's share being worth $100,000 - and not $30,000 as orignally stated. Sorry for the confusion.

If you have any questions, let me know.