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Merlo
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 father gifted his house to my brother and I before he passed

Resolved Question:

My father gifted his house to my brother and I before he passed away. The tax basis was not changed so I pay very little in property tax. My brother needs to sell his half to me. How can this be done without changing the property tax situation (we live in CA)? Also what is the capital gains tax situation for my brother?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
HelloCustomer

The exclusion on reassessment applies only when property is transferred from parent to child or from child to parent, but not when it is transferred between brothers and/or sisters. You could not legally do a sale and avoid reassessment of the property.

As far as capital gains tax for your brother, he would owe capital gains tax on the sale, assuming he has not also used that home as his primary residence. Since this home was a gift to you and your brother, then you each retain the same basis as your father's original basis. So your combined basis in the home is whatever your father originally paid for the property plus the cost of any improvements he made during the time he owned it. You would then also add to that basis the cost of any improvements that you and/or your brother made to the home. Each of you then have 50% of that amount as your basis.

When he sells his share of the home to you, his gain will be figured by taking the sale price less his share of the basis. That gain will then be subject to long term capital gains tax, and that rate is currently capped at 15%. He would also owe ordinary income tax to the state of California, and that tax rate will depend on what his other overall income is for the year, as it is his total income that determines his tax bracket.

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Thank youCustomer

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