Below MV home sale cost basis

[jbs7wx]

My wife and I bought my aunt’s home in our personal names in 2016 for $23,678. At that time its appraised value was $66,500. It was her and my grandmother’s residence and eviction was imminent without our intervention. We allowed them to live there rent free until my grandmothers passing in January 2020. We did rent a small apartment located on the property from mid 2016 to July 2019. That rental was reported on previous years’ returns. For liability reasons in January 2019 we deeded the entire property into an LLC my wife and I created and manage. It was valued at $68,000 at that time. I say all that to hopefully establish some cost basis. In 2020 we did renovations totaling $30,035 due to the poor condition of the home. We then sold the property from the LLC in August 2020 for $145,000. My question is what our cost is for taxable gain calculation?

[ColeenD3]

Because there is difference in the FMV and the purchase price, that amount is treated as a gift. The basis of gift property is the previous owner's basis. It is whatever amount they paid for the house, plus improvements.

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Pub 551

In addition to this is the money you put into it. You paid $23,678 and $30,035. Add these three amounts together to arrive at your basis.

[jbs7wx]

I understand the property being considered a gift and using my aunt’s adjusted basis as our staring point. I just want to confirm that we can add the $23,678 that we paid to her creditor to our adjustments to basis. 

[ColeenD3]

Yes. form Pub 550:

The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. 

Purchase. The basis of a home you bought is the amount you paid for it. This usually includes your down payment and any debt you assumed. The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. This amount includes any purchase commissions or other costs of acquiring the shares.

[jbs7wx]

Ok. I have the current version of TurboTax Business to file the necessary documents for our LLC. How do I go about capturing this situation in it? The company had no other income nor expenses, this home sale was our only transaction for the year. Thanks.

[ColeenD3]

If you formed a single-member LLC (or two member LLC if both members are married and filing a joint return), it will not affect how you would ordinarily file without the business. Since the IRS sees your LLC as a disregarded entity, you still report your rental income & expenses on SCH E using TurboTax Premier.

Unless you have non-rental related income/expenses in your LLC, you have nothing to report for your LLC and a SCH C is not required.