@TWW wrote:
So - following the example, the total tax basis would be 10% x 200,000 plus 10% x 800,000 = 100,000, correct?
Correct on the 10% of $800,000 but you need to know your wife's mother's adjusted basis at the time (in 1994) she made the gift to your wife.
You, apparently, know the fair market value at the time of the gift but, typically, the donor's adjusted basis is less than the fair market value in this type of transaction. If that is the case here, then your wife's "gifted basis" in 1994 would her mother's adjusted cost basis (i.e., a carryover basis).
