Question

Capital gains on land sale

Forum|Forum|3 years ago
December 15, 2022
2 replies
0 views

My mother sold a portion of her land (3 acres) to us at a very cheap price ($3,000) approx. 3/4 years ago...she wanted us to build a house right beside her but she has now passed away. I have now sold that land for $190,000. Will I need to claim the difference as captial gains? Are there any adjustments such as the selling price minus fair market value instead of what mom sold it to us for...etc?

Could we avoid the capital gains tax if we rolled the proceeds over to our current home mortgage?

We live in Iowa - will we have to pay state taxes as well?

thanks in advance.

Not A Product Question

M

Mike9241

what occured was part sale part gift. so IRC sections 267 and 1015 determine the reporting

if the $3,000 sales price was less than her basis the loss would be disallowed under IRC 267.

if the fair market value exceeded her tax basis by $16,000 she should have filed a gift tax return form 709.

good news. under IRC 1015 your basis is her basis (plus the costs of any improvements made by you after the gift) unless her basis was greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value (+ cost of post-gift improvements). for determining gain you use her basis (+post-gift improvements). more good news is that you use the date she acquired the property for determining long-term vs short-term

S

sheryljoAuthor

Mike9241

thanks for your answer unfortunately she did not file a gift tax form before she passed away (a couple of years ago). i doubt there is anyway we could claim that now..????? with that said does that change your response. as you can see i received another answer that says there is nothing we can do.

again thanks for answering.

M

Mike9241

it's my opinion that the non-filing of the gift tax return does not change the facts that she made a gift of $XXXX. however, the tax laws as to gifts are complicated. so for the best advice see a lawyer who is currently practicing.

There is technically no actual dollar penalty for filing a gift tax return late unless gift tax is due (although leave it to the IRS to try to assess something).

However, filing a return starts the running of the 3-year time period for the IRS to challenge the valuation(s) reported on the return (if you never file the statute never begins to run).

that's what you risk if the return is never filed, 20 years down the road the IRS could say the valuation was too high

T

TomD8

Employee

Q: Will I need to claim the difference as capital gains?

A: Yes.

Q: Are there any adjustments such as the selling price minus fair market value instead of what mom sold it to us for...etc?

A: No. This only occurs when property is inherited.

Q: Could we avoid the capital gains tax if we rolled the proceeds over to our current home mortgage?

A: No.

Q: We live in Iowa - will we have to pay state taxes as well?

A: Yes. The only exception in Iowa is that net capital gains from the sale of real property used in a business are excluded from net income on the Iowa return of the owner of a business to the extent that the owner had held the real property in the business for ten or more years and had materially participated in the business for at least ten years.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.