Tax basis and capital gains on sale of land when family shares involved

Forum|Forum|1 year ago
January 3, 2025
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After my parents died, me (S1) and my 6 siblings inherited a piece of land. I bought the piece of land for $60,000 in 2014, however, I did not have $60,000 at the time. Two of my siblings, S2 and S3, graciously allowed me to not pay them their 1/7th of the land share (valued at roughly $8,571 based on the $60,000 purchase price), which meant I only had to pay about $34,286 at the time ($60,000 - ($8,571x3), their two shares and my own 1/7th). In 2024, 10 years after I bought the land, I sold the land for $265,000. With the proceeds of the sale, I paid back S2 and S3 their original share, roughly $8,571 each.

When filing my taxes for 2024, assuming for easy math that there were no expenses that I paid on the sale of the land in 2024, other than the $8,571 I repaid to S2 and S3, what is the capital gain that I need to report for 2024?

Best answer by AmeliesUncle

You paid six siblings $8,571 each right (four when you first received it, then the other two basically had a loan with you and you paid them after you sold it).

Paying six siblings $8,571 each is buying the property for a total of $51,426.

But you are correct that my original response did not include your 1/7th ownership. If the Fair Market Value on the Date of Death was $60,000, then your 1/7th Basis was also $8,571-ish, so your total Basis would be $60,000.

Paying your last two siblings is still part of your Basis (cost), not a sales expense.

If your Basis is $60,000, you enter that as your 'cost'. Then enter the sales price of $265,000, for a gain of $205,000.

AmeliesUncle

@Smithers45 wrote:
After my parents died, me (S1) and my 6 siblings inherited a piece of land. I bought the piece of land for $60,000 1/7th of the land share (valued at roughly $8,571

I sold the land for $265,000.

Do you mean you paid $51,426 for the land? You already owned 1/7th of it.

If you paid $51,426 for the land and sold it for $265,000, that is a gain of $213,574.

Smithers45Author

@AmeliesUncle No, if you read my full post, I paid $34,286 at the time ($60,000 - ($8,571x3)) which subtracts my 1/7th and the 1/7th shares of two of my siblings, S1 and S2, which graciously allowed me to forgo paying them their fair share so that I would be able to afford the purchase.

I get that its possible then that my basis is $34,286, but since I paid back S1 and S2 their $8,571 after the sale of the property, I'm wondering if I can consider that $8,571 payment to them as an expense of the sale so that overall my taxable long term gain is the same as if I had paid them $8,571 at the initial purchase 10 years ago.

AmeliesUncleAnswer

You paid six siblings $8,571 each right (four when you first received it, then the other two basically had a loan with you and you paid them after you sold it).

Paying six siblings $8,571 each is buying the property for a total of $51,426.

Paying your last two siblings is still part of your Basis (cost), not a sales expense.

If your Basis is $60,000, you enter that as your 'cost'. Then enter the sales price of $265,000, for a gain of $205,000.