@Drkbest wrote:
Thank you again, my stepmother is still alive. So the proceeds of the $315000 was split between the 3 of us.
I just don't understand why we cant start the clock in 2013 when she and my father married and he put us all on it as joint tennants vs 1968. Most every one I have talked to is saying it is indeed 1968 for my brother and I.
Because that's not how cost basis works. Cost basis is, roughly speaking, the amount of already-taxed funds you have invested in something. When you are given a gift, you are also given the cost basis of the gift. When you inherit property, you get a stepped up basis, but not when you are gifted property. You can read publication 551 for a long discussion of basis of assets.
https://www.irs.gov/forms-pubs/about-publication-551
Now you are adding more facts. Life estate is out the window since you sold the home with your stepmom and split the proceeds.
You start by determining your father's cost basis on the date before the gift (the date you were added to the deed). The cost basis was the price he paid in 1968, plus the cost of any permanent improvements made between 1968 and 2013. Repairs and maintenance don't count. Whatever that cost basis was in 2013, you and your brother each get 1/4 of it since you were 1/4 owners.
Then, you can add 1/4 of the cost of any permanent improvements made between 2013 and 2023. That is the new adjusted cost basis of each of the 4 co-owners on the day before your father died.
When your father died, each of the remaining 3 co-owners inherited 1/3 of his 1/4 share of the home, at a stepped up value equal to the fair market value on the date he died. Assuming that the fair market value was $315,000, your father's share was $78,750, so each of the remaining 3 co-owners adds $26,250 to the previously calculated basis.
That is your new adjusted cost basis. From the selling price, you can subtract the real estate commission and maybe certain taxes and fees, as described in publication 523. After adjustments, divide the selling price 3 ways, subtract your adjusted basis, and that is your taxable gain.
Remember that it is the selling price that counts, not the proceeds. If the proceeds were reduced because there was a mortgage or equity loan to pay off, your gain is still calculated on the selling price.
