@Lennyb08 wrote:
Thanks for the reply. The original price they paid for the home was $57,000. Just before he died, he did a quick claim to his wife of the deed and the house was assessed at a value of $87,000. I don't know if that transaction is considered a "new sale" for tax purposes. The sale value she just got for the house was $405,000.00.
First, you may want to consult an attorney, although it may not change much based on the dollar amounts. On paper, by giving the home to his spouse, he bypasses the step-up in basis that she would get if she inherited it instead. However, depending on the intention at the time, this might be an "implied life estate" which would still give her a stepped up basis.
However, this makes little difference, based on the dollar amounts involved. If she inherited the house and does not live in a community property state, her basis would have half the price ($28,500) plus half the value when the spouse died ($43,500) totals $72,000. If she inherited the house in a community property state, her basis would be $87,000. If she was gifted the house, her basis is $57,000. The difference between lowest possible basis and highest possible basis is $30,000 which would result in $4500 of capital gains tax--that's the most she could save by proving a higher basis by discounting the quitclaim deed, so it might not be worth consulting an attorney.
Also, check publication 523 beginning on page 8. Certain closing costs at the time of the purchase and the time of sale can be used to adjust the basis and reduce the gain. The cost basis can also be adjusted by the cost of improvements made to the home.
https://www.irs.gov/forms-pubs/about-publication-523
