Question

Cost Basis of Inherited Home

Forum|Forum|4 years ago
December 12, 2021
1 reply
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I have been on my parent's house deed for about 10 years, we are joint owners with right of survivorship. My mother has died, my father is still alive. We are selling the house. How do we determine the basis of the house? How do we determine the capital gains? My father has lived in the house and meets all the resident requirements. I have never lived in the house.

Not A Product Question

Employee

we are joint owners with right of survivorship.

That's not much different than a joint bank account with right of survivorship. But how your state laws deal with that may differ from my state. Typically, it doesn't change the fact that you only own a percentage of the property. That percentage may change when one of the other owner's passes. Or it may not change anything for you. For example:

Three owners.

Mom owns 33.3%
Dad owns 33.3%

Son owns 33.3%

Dad passes away. Now son and mom each own 50%.

However, if there's a will involved, that can change things. If no will, then state law will dictate who gets what percentage. It's perfectly possible that Mom would end up with 66.6% while the son retains the original 33.3% ownership.

That's just a few possible scenarios. Each may have a different impact on the cost basis of those still living. It also matters if the parents live in a community property state. There are many more possibilities here. I highly suggest you seek professional help within the local jurisdiction.

D

DukedgAuthor

Yeah, the bank accounts were all simple.....

There was a will, the attorney that filed the probate paperwork said that the house does not become part of the estate because of the right of survivorship. So, at this point Dad and I each own 50%.

The most important thing for me at this point is to determine my basis for the house. It appears to be one third of the FMV at the time I was added to the deed plus half of Mom's FMV share at the time of her death. If the FMV of the house at the time I was added was $90,000, then my basis is $30,000. With the FMV of the house at $240,000 when she died, her portion would be $80,000. Then I'd add $40,000 to my basis for a total of $70,000. Then I'd report half of the NET from the sale as capital gains on my income tax.

Final answer will be from a licensed tax professional.

Thanks for the help.

Carl11_2

Employee

Based on the facts provided thus far, I am not in disagreement with y our assessment on the assumption that your state is not a community property state. However, a tax professional for a "final" answer is the safest way to go. There may be other factors within state law that you and I may not be aware of. A tax pro should know though, at least from the tax reporting standpoint. Especially important if you state also taxes personal income. The big thing that matters and most likely will affect the cost basis, is if you're in a community property state.