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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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Were in the process of selling a house that was given to us

Resolved Question:

We're in the process of selling a house that was given to us (transfered the deed to us)by my husbands mother 22 yrs or so ago and she lived with us. I'm assuming the value of that house was much more than we are receiving now in this housing market. If that is true, will we need file paperwork or be concerned with capital gains taxes?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

Basically when a deed is simply transferred to you by the owner, that is considered to be a gift. When you receive a gift, you retain the same basis as the donor's basis. So your basis in this house will the the same as what your mother-in-law's basis was at the time she gave you the home. It is not the market value of the home at the time you receive the gift.

Your mother-in-law's basis would have been whatever she originally paid for the home plus the cost of any improvements she may have made. That basis is what transferred to you. If you have also since made improvements of your own to the home, then you would also add the cost of those improvements to your basis.

If you now sell the house your gain is determined by taking the selling price less that basis, less the cost of any selling expenses such as real estate commissions. If you have a gain, that gain is subject to long term capital gains tax which is currently capped at 15%. If you have a loss, then no tax wil be due.

In either case, the transaction should be reported on Schedule D of your tax return.

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Thank youCustomer and let me know if you have any more questions. I am happy to help you with whatever I can.
Customer: replied 8 years ago.
The prices for improvements she made and the original price are items we will never know because they were done over 60 yrs ago.Once we aquired the house with our family we made many improvements, so since that has to be considered, I am convinced we will have a loss. How can we report any of this? What might happen if we do nothing?
Expert:  Merlo replied 8 years ago.
Hello againCustomer

I have one more question please on the home that you are selling. Have you been living in this home and using it as your primary residence for at least 2 of the last 5 years?

Customer: replied 8 years ago.
Yes, we have lived in the home with her for 20 yrs.
Expert:  Merlo replied 8 years ago.
Hello againCustomer

Thank you for the clarification. As long as this home has been used by you as your primary residence for at least 2 of the last 5 years, then when you sell the home you can automatically deduct $250,000 (or $500,000 if married filing a joint return) from any gain you would have. Taxes are not due unless your gain would exceed those amounts.

You would still need to report the sale even if you end up with a loss. When you sell the home, the company that completes the closing will send you a 1099-S form at the end of the year. That 1099 form will report the amount of money you received from the sale. The IRS also receives a copy of that 1099 form, so for that reason they will be looking for you to report this transaction when you file your return.

You will simply list the transaction on Schedule D which is used for capital gains. You will show the amount you received for the home less your basis, less the exemption amount you are allowed because this is your primary residence. If that results in a loss then no tax will be due. But you should make it a point to include this on your return, otherwise you will end up receiving a notice from the IRS requesting you to pay tax on the full amount that was shown on that 1099 form.

If you are unable to come up with the exact amount of your mother's basis in the home, you should just make your best estimate of what her basis may have been. If your selling price on this home is less than the exclusion amounts allowed, then this will not end up being a major issue.

If this was helpful please press the Accept button.

Thank youCustomer and let me know if you have more questions. I am happy to help you with whatever I can.

Merlo and other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Thank yo, that is very helpful!
Expert:  Merlo replied 8 years ago.
You are welcome. Let me know if you need more help.