Deductions & credits

For starters, you would need to know what's the basis of the gift of Mom's 1/2 interest. The IRS is very specific about basis in this link. To figure out the basis of property received as a gift, you must know three amounts:

• The donor's adjusted basis just before the donor made the gift.
• The fair market value (FMV) of the property at the time the donor made the gift.
• The amount of any gift tax paid on the gift (Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return).

This is crucial because if the FMV of the property at the time the donor made the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

• Your adjusted basis for figuring a gain is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
• Your adjusted basis for figuring a loss is the FMV of the property at the time the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
• Note: If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV of the property at the time the donor made the gift is equal to or greater than the donor's adjusted basis, your adjusted basis is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.

• If the donor paid a gift tax on the gift and made the gift after 1976, increase your basis by the gift tax paid on the net increase in value. To figure out the net increase in value or for other information on gifts received before 1977, see Publication 551, Basis of Assets.

Once you determine your basis, you can record the sale of your property. Basically a capital gain or loss is determined by the difference between your BASIS and your portion of the sale. If your portion of the sale is greater than your basis, it's a capital gain. If the basis is greater than the portion of the sale, it is a loss.