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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1408
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Will I have to pay capitol gains tax on $26000 gift of

Customer Question

Will I have to pay capitol gains tax on $26000 gift of equity my sister gave us,we bought the house from her and sold it in less than a year
Submitted: 1 year ago.
Category: Tax
Expert:  Mark Taylor replied 1 year ago.

Hi, my name is Mark. I will be happy to help you with your questions. Could you give me more information on the transaction. Your sister gave you a gift of $26,000?

Expert:  Jax Tax replied 1 year ago.
The first thing you must determine is whether the sale of the home to you for less than value was in fact a gift. Basically was it intended to be a gift. It may help to know if your sister treated it as such on her return. Assuming it was a gift, you then need to compare the sells price to the value at the time of sale to get a percentage. The percentage that was a gift. One that is obtained you have two transactions to report as capital transaction. The portion you bought using your cost and thw percentage of sells price equal to the percentage you bought. Then you need to report the sell of the percentage of the home that was gifted. For this you need to know your sisters purchase price. When gifted, your cost is the cost of the lerson who gifted it to you. Apply the percentage of gift to her purchase price to get your cost. Then the dofference in that and the same percent of the sale is your gain on that portion. Whether you have capital gain depends on the numbers. A call may be best to discuss the complex transaction.
Expert:  Jax Tax replied 1 year ago.
To explain better. You have to split your orginal purchase into two transactions. You bought a percent of the home and you were gifted a portion.
Expert:  Jax Tax replied 1 year ago.
you need to know the value when you purchased the home. This is hard because value is usually what someone will pay. Now if your sister did in fact decide that she would sell it to you at a discount, a gift, then she should have figured these numbers for purposes of gift tax on her return.
Expert:  Jax Tax replied 1 year ago.
you use the value when you purchased say 100k. Compare to what you bought it for sat $75k. That means you purchased 75% gifted 25%.
Expert:  Jax Tax replied 1 year ago.
Then 75% of what you sold it for is compared to your purchase price to determine gain or loss. Then you compare 25% of what you sold it for to 25% of what your sisters cost basis was in the home to determine gain or loss. Add the two and you have the gain or loss that is taxable.
Expert:  Jax Tax replied 1 year ago.
Keep in mind this all assumes there was in fact a gift. If so, your sister would have only used 75% of her cost basis on her return when reporting her sale to you leaving you 25% of her purchase price to use now.
Expert:  Jax Tax replied 1 year ago.
My hope is that I have explained this in a way that makes sense. It is a complex question. If you have a preparer do your return you will need to provide your sisters cost basis, the value at the time you purchased the home, your cost, and the sells price. With these items, all I explained can be determined. This could be more complex if your sister used the home as a rental or inherited the property as opposed to purchasing it. Either of these would effect her cost basis.
Expert:  Jax Tax replied 1 year ago.
The rule behind this is called transferred basis for gifts. If she did gift a portion then she must also gift the same portion of her cost basis. That means your sister could not have used this portion of her cost basis on her return when reporting the sale to you. There may also have been a form 709 on your sisters return to report the gift depending on the value.