Question

Capital gains exemption

Forum|Forum|1 year ago
October 2, 2024
3 replies
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Thanks for the help.

Not A Product Question

A

Anonymous_

Employee

No text available

M

MrDeanSpAuthor

Thanks for the help.

O

Opus 17

Employee

@MrDeanSp wrote:

Yes. It was my primary residence for a decade. So I should get the exemption. Ok, I read your second post and understand better. I got confused for a second. So my basis would be the fair market value of the house at the time my mother gifted it to me and the quitcliam deed wouldn't figure into it. I think I understand now. Thanks for the help.

No.

Your basis is your mother's basis, or the FMV on the date of the gift, whichever is lower. You don't get an increased basis with a gift.

Your mother's basis is the FMV on the date of your grandmother's death (because inheriting does increase the basis although a gift does not) plus the cost of any improvements.

Example: Grandmother paid $5000 for the house in 1950. Your mother inherited the house in 2000 when the value was $100,000. Mother gave you the house in 2015 when the value was $200,000. Your basis is $100,000 because that is your mother's basis.

A

Anonymous_

Employee

No text available

O

Opus 17

Employee

If you owned the home (or co-owned the home) for at least 2 years, and lived in the home at least 2 of the past 5 years, you qualify for the exclusion. Your problem is determining your basis, and how much the gain actually is.

If the total sales price was $250,000 or less, then even if we assume there is zero basis, your entire gain is excludable and we don't really have to consider the basis at all.

However, if the sales price was more than $250,000, we need to determine your basis, so we can figure out what your gain is. If your gain is more than $250,000, you pay tax on the difference. (For example, if your basis is $50,000 and the sales price is $350,000, you have a $300,000 gain. You can exclude $250,000 and pay capital gains tax on the rest.)

To start with, your mother's basis was the fair market value on the day your grandmother died. You can get an appraisal or market analysis from a real estate professional based on historical records. So that's the lowest your basis might be. The basis is increased by the cost of any permanent improvements your mother made after she was the owner.

Then, because this was a quitclaim deed instead of a life estate, I think your basis will be your mother's basis as of the date of the gift. Then you can add the cost of any permanent improvements you made. Your gain is the difference between your sales proceeds and your basis.