Question

calculating basis on primary home owned for 40+ years

Forum|Forum|3 years ago
May 1, 2023
3 replies
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My mom recently sold her house that she owned for over 40 years. Original purchase price was ~30k in 1970s; she sold it for ~700k this year. The house underwent several renovations over the years, kitchen x2, raised roof/added bathroom, multiple bath renovations, finished basement, new windows x 2, etc etc etc. A lot of this work was done in the 80s and 90s. How would she go about adjusting the basis? She doesn't have receipts for most of the work and some of it was done by my dad. My dad passed away and my mom was the sole owner so her capital gains exemption is 250K.

Thanks for any advice on where to start.

A.

leeloo

There isn't much you can do without receipts but to try and recreate the amounts to the best of your recollection. The labor of your father would not be included, so it would just be the materials purchased. You might find out what the materials cost today and find out the dollar value for that given year. Truly, though, you always need to keep receipts.

A

Anonymous_

Employee

@aem1337 wrote:

My dad passed away and my mom was the sole owner so her capital gains exemption is 250K.

When did your dad pass and was he on title with your mom at that time?

If so, your mom likely took your dad's share of the property (presumably 50%) at the fair market value on the date of his passing (i.e., a stepped-up basis for your dad's share). Depending on the date of his passing and the FMV at that time, this could produce a better result than tracking down the cost of improvements made decades ago.

A

aem1337Author

Thank you for your responses.

He passed in 2019. They were both listed on the deed so she would have taken his share at that time. The step up basis will definitely increase the basis more than estimating past improvements.

To calculate the step up basis would it be 0.5 x FMV 2019?

Critter-3

Since he passed more than 2 years from the sale of the home the exclusion option will not be available but you do need to calculate the updated basis. Using this word formula you can enter in the figures to come up with the needed figures for reporting the sale in the TT program.

Original purchase price of the home + cost to buy + improvements up to the date of death = cost basis to DOD ... Each spouse gets 1/2 of that cost basis.

DOD value is determined and the surviving spouse now gets 1/2 of the DOD value + the 1/2 of the cost basis prior to DOD + improvements made after the DOD + cost to sell = cost basis for surviving spouse

Selling price - cost basis for surviving spouse = profit/loss

Surviving spouse can excluse up to $250K of the profit ... any excess profit is taxable at a long term capital gain rate.

M

Mike9241

was your mom co-owner or did she inherit the property from her spouse? as co-owner 50% of the basis would be Fair Market Value on the date her spouse died. her basis in the other 50% would be cost + 50% of the improvements made before he died. after that add 100% of the cost of improvements. if she inherited 100% then is the fair market value on the date of death plus the cost of subsequent improvements. certain rules apply as to whether improvements add to the basis. In order to add to the tax basis, an improvement must adapt the home or part of the home to a new use, prolong your home’s useful life or add to the value of your home. Unless the improvement meets one of these criteria, you can’t include the cost.

Carl11_2

Employee

Was your mother married? If so, and if her husband passed away at any time during their ownership, she would inherit her husband's ownership share in the property at a minimum. The cost basis would be the FMV of his share on the date of his passing.

If in a community property state, she gets a step-up in basis on the entire value of the house. Otherwise, she gets a step-up in basis of his 50% ownership in the property on the date of his passing.

Then, you would add the cost of any property improvements done "after" his passing, if you have the paperwork to prove the cost of those improvements.

A

Anonymous_

Employee

@Carl11_2 wrote:

Was your mother married? If so, and if her husband passed away at any time during their ownership, she would inherit her husband's ownership share in the property at a minimum.

That would not necessarily be the case. It would be dependent upon how title was held on the date of passing, any testamentary documents, and/or state law.