Sale of parents' primary residence

Forum|Forum|4 years ago
April 10, 2022
1 reply
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My parents included my sister and me on the purchase of their primary residence in 2015. Our father passed away in 2019 and my mother sold this primary residence in 2021 for a $60k gain from purchase price.

Some details: all 4 of us are listed on title, only 3 of us were on the mortgage (parents plus me so they could qualify, I made no payments); our parents made all the payments; at the time of the sale, my mother split the proceeds (net of mortgage payoff) between the three of us (50% her, 25% to each me and my sister)

How do we file taxes for this sale?

- Can my mother increase the basis to FMV by the portion my father owned? Is that considered 25% or 50% for his portion? Do we do this as an adjustment (increase) to basis in TurboTax?

- How do I file taxes on this sale? since this is not my primary residence or a rental property that I have never reported taxes on before, I'm not sure how to classify the proceeds as part of taxes. The state of Maryland has withheld taxes on the proceeds that came to me since I live in another state.

Many thanks for the help!

ColeenD3

It's always a good idea to ask questions about how something like this should be done before the fact rather than after. You should check with an attorney about this.

The four of you being on the deed suggests that you are all four equal owners. I assume that neither of the children had a monetary contribution to the purchase. The mortgage and what your mother gave the two children have nothing to do with anything. Gain is based on sales price minus basis.

Please see this example for how each calculates their basis.

When a property is owned by joint tenants with survivorship, the interest of a deceased owner automatically gets transferred to the remaining surviving owners

The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety.

John and Sam owned as joint tenants with right of survivorship, business property they purchased for $30,000. John furnished two thirds and Sam one-third. Depreciation deductions allowed before John's death were $12,000. Under local law, each had a half interest in the income from the property.

At the date of John's death, the property had a FMV of $60,000, two thirds of which is includable in John's estate. Sam figures the his basis in the property as follows:

Interest Sam bought with his own funds—1/3 of $30,000 cost ................. $10,000

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Interest Sam received on John's death—2/3 of $60,000 FMV .......... 40,000 $50,000

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Minus: 1/2 of $12,000 depreciation before John's death ............. $6,000

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Sam's basis at the date of John's death ................ $44,000

If Jim hadn't contributed any part of the purchase price, his basis at the date of John's death would be $54,000. this is figured by subtracting from the $60,000FMV, the $6,000 to depreciation allotted to Sam's half interest before the date of death.

shine3Author

Thank you, Coleen!

You are correct in that neither my sister nor I had any financial interest in the house (my parents paid the mortgage and down payment on the home).

Can I file my mother's taxes such that she received my father's portion of the home and exclude my sister and myself from the home sale altogether? If so, I assume that I calculate the basis just based on the two of them and increase it with 50% of the basis to match the sale price. And since this is their primary residence, there is no depreciation.

For my taxes, do I need to report this sale at all? The state of Maryland withheld state tax since I was not a resident so not sure how I get those back?

many thanks!!

AmyC

Employee

You and your sister were owners, your basis in the house is the gift value received from your parents- their basis. So, let's say the house was purchased for $200,000 and your parents paid for the whole thing but gave half of it away, to you and your sister. Then you each have a basis of $50k, along with each of your parents.

When your father died, his share 25%, became fair market value, let's say $220,000 value house. His share would be $55k and that divides among the 3 of you.

You all need to report the sale of your third of the house.

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