Cost Basis

[RCW4418]

We sold our primary home to my daughter and husband on 12/3/2020 for 475K in Phoenix, AZ. Held the loan for the entire amount, with monthly payments at 1319.44. Recorded sale on my 2020 tax returns and paid required taxes. The children have decided to move back to NY, so we are going through legal process to put title back in our name and do a deed release. How would we calculate the new cost basis of the home when we go to sell it again? Will it be the 475K minus the payments they have made against the loan? Also will we have to own for another 2 years to get capital gains exclusion? Thank you.

[M-MTax]

Was $475k the fair market value when you sold to your daughter? How long did you own the home before you sold to your daughter and who's "WE"? Need more details.

[RCW4418]

Yes 475K was fair market value. Owned the home since January 2011. "We" is my wife and I. 

[Mike9241 · Accepted solution]

if you sold at FMV and assuming "we" is you and your spouse

tax basis will be the 475K minus the principal payments they have made against the loan? this assumes you did not use the installment method for reporting the gain

1) you can only use the home sale exclusion once every 2 years.

2) both owners must occupy the house as their principal residence for 2 out of 5 years before the sale. only one needs to be the owner for that period