My wife and I recently sold our first home, which our daughter has lived in rent free for the last five years. Since my wife and I did not live in the home for 2 of the last 5 years I understand it will not be considered a primary residence and we will owe capital gains tax. Please correct me if I am wrong.
We are trying to understand our tax liability, but several things have occurred that confuse the situation for us.
My wife and I purchased the home in in 1994 and my mother co-signed the loan so we would qualify for financing. Unaware my mother's name was put on the deed also, we ran into title issues trying to sell the home.
My mother passed away 05/27/2021, and we eventually sold the home 09/01/2023. Her Last Will and Testament generally left everything equally, but the executor has flexibility over how things are divided. In order to sell the home, my brother, his wife, my sister, me and my wife had to all sign quit claim deeds to me and my wife's trust.
I am pretty sure me and my wife are required to pay capital gains tax on our share of profit from when we bought the house in 1994 minus any other additions to our basis (original cost of home, major improvements, etc.)
Question 1: Is our share 1/2 the proceeds or 2/3 of the proceeds?
I am pretty sure we are supposed to set the basis value at the time of my mother’s death, but I also heard that it can be set to the same value of the sale if it was close to the time of her death. Not sure what close means, but we basically had to work through the probate to sell it.
Question 2: When do we establish the basis value for my inherited share? At the time of her death or when we inherited/cleared probate?
Question 3: Do we create two entries for the separate events or just do the math in a spreadsheet and put the final numbers in one entry?
