Question

Sibling Buyout, Gift Tax, & Capital Gains Tax

Forum|Forum|1 year ago
July 10, 2024
1 reply
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My sibling and I inherited our mothers home after she passed away and we decided to do a sibling buyout. He bought me out for less than fair market value of the property and he is keeping the home to live in with his family. If property was valued at a little over $1M, and I was bought out at $200K, am I subject to pay a gift tax or is my sibling? Also, am I subject to pay capital gains tax?

A

Anonymous_

Employee

The $300,000 gift should be reported on Form 709 since it exceeds the annual exclusion of $18,000 for the 2024 tax year (note that you do not need to report or file).

See https://www.irs.gov/forms-pubs/about-form-709

However, no gift tax will be due unless the transferor has exceeded the lifetime exclusion of $13.61 million.

See https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

A

Anonymous_

Employee

Note that this transaction is considered by the IRS to be part gift/part sale. ~~As such your basis in the property will be the greater of your sibling's basis in the property or the amount paid by you to buyout your sibling's share ($200,000).~~

See https://www.law.cornell.edu/cfr/text/26/1.1015-4

Generally, your basis and your sibling's basis would be the fair market value on the date of death of your mother (e.g., $500,000 each).

I am sorry for your loss.