@shelley1991 wrote:
Very good example. I assume this only needs to be filed one time. But still a little confused. I read it a few times and want to make sure.
If "your sibling's adjusted basis is 200+400=$600K". Does that mean the 200 (original cost basis + 400 (cash amount she is paying me) = $600K (sister's new cost basis) ?
Dos that mean her basis has been adjusted? I think I am missing something. Thank you.
If your sister buys your half of the house, she adds the price she pays to her original basis in her half of the house.
In my example, if you each own half the house and share a $400K basis, then you each have a basis of $200K in your half-share. If she pays you $500K for your half-share, then:
- your gain is the difference between the selling price for your half-share and your basis in your half-share. Your gain is 500K minus 200K equals 300K.
- your sister adds the price she paid for your half-share to her original basis for her half-share. Her new adjusted basis for the whole house is 200K plus 500K equals 700K. Any future gains, if and when she sells, will be determined from her selling price and her new basis.
Your sister’s basis is increased by whatever she actually pays you, regardless of the actual or theoretical value of the property.
You don't "file" the basis. Keep proof of what you did with your other tax records for as long as you/she owns the house plus at least 3 years after, in case of audit. You report the sale of your share as a capital gain on your tax return for the year you sell your share, and your sibling reports the sale of the whole house on their tax return for whatever year they sell it.
