I purchased my parent's house about 5 years ago when they were having financial difficulties. Here are the key amounts that were part of that transaction:
Purchase Price: $535K
FMV: $580K
Gift of Equity: $150K
Loan Amount: $396K
Parent's Tax Basis: $200K
The difference of ~$10K between the purchase price, gift of equity, and loan was due to title and escrow fees, in addition to homeowner's insurance reserves and property tax reserves.
I believe that this transaction would fall under the following guidance: § 1.1015-4 Transfers in part a gift and in part a sale. Therefore, I believe my cost basis would be the loan amount, as that is what I actually paid out to pay off my parent's loans (i.e. primary and LOC - total of $190K), pay off my parent's liens (i.e. total of $17K), and pay out my parents in cash (i.e. total of $175K). The remaining amount of the loan relates to title and escrow fees.
Could you help confirm what my cost basis is for this transaction?
