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Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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This is really Federal Income Tax question: In 2005 Mom

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This is really Federal Income Tax question:

In 2005 Mom listed four of us on the deed for the house and property. Mom, Roger, Judy and Rick. Joint ownership with rights of survivorship not tenants in common. Each owning 1/4 of subject property.

We are aware of the fact that we have to calculate cost basis based on an approximated value as of 2005.

House was purchased in 1998 for $70,000 and recently appraised for $86,000.

The subject property is and has been my legal place of residence since purchased in 1988. Roger wants to sell me his share for $1.00. This creates a "Long-Term Capital Loss." Since the subject property IS NOT and NEVER HAS BEEN his residence. Is he entitled to "Capital Loss" deductions on his Federal Income Tax?

Thank you for using justanswer. Unfortunately, your brother can not sell you his portion of the home for $1.00 and then file for a capital loss.

Anti churning rules prevent the sale of property to a relative for less than Fair Market Value (which would be 1/4 value of the home)

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Customer: replied 5 years ago.
Valuation for Gift TaxThe appraised value of house and property is $86,000. The appraisal does not include structural problems: The half of the garage floor is sinking and needs replaced; the wood pillars supporting the car port roof are rotten; and the electrical and plumbing systems are over 60 years old.My brother who retains 1/3 ($28,667) ownership wants to sell his share to me for $1.00. He would be gifting me $28,666.This generates a Gift Tax situation.If I obtain an estimate to correct these problems, can I subtract from the $28,667 to create an Adjusted Cost Basis?Or decrease the gifted amount? ,
You are correct that your brother would be "gifting" his share of the house,and filing a gift tax Form 709 return may be a possibility.

However, there are 2 things to keep in mind when it comes to gift tax.

1-First, there is a yearly $ amount that you may "gift" someone without having to file the form 709 gift tax. The $ amount for 2012 that you may gift without having to file a gift tax form is $13,000/person.So if you are married, or have children for example, your brother could "gift" $13,000 to you, $13,000 to your spouse, and $2667 to one of your children. (if you have any( If I did my math right, that should add up to the $28,667.

2-Secondly, you have a lifetime limit of $1,772,800 before you would actually pay any tax. (So even if your brother has to file the form 709, he will not owe any tax. The only reason for filing the form would be to let them know that he has "used" $15667 ($28667-$13000 yearly gift allowance) of his lifetime limit.

Now that you know your brother won't actually have to "pay" any gift tax, let's look at the rest of your questions.

Any improvements you make to the house increases the cost basis. So, since the home was gifted to you and your siblings, you must use your mother's cost basis of $70,000 to start with. (You could only use the $86,000 assessed value if you had inherited it the home after your mother died. Since she listed the 4 children on the deed in 2005, she "gifted" you each 1/4 of her cost basis)

You should keep track of all of the improvements you do, so if they change the tax laws and you want to sell the home someday, or even if you want to leave it to the next generation, you have a record of the true cost basis.

I hope this helps
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