Yes. But, probably, no tax will be due. It’s best explained by
example.
Example 1: You have a cost basis of $100,000. The house is
currently worth $150,000. Your sister sends you $60,000 after you deed the
house to your niece. The $60,000 is your “sale” amount. But, since the $60,000
is less than your cost basis, you do not have a reportable capital gain*. You
have given a “gift of equity” of $90,000 (150K-60K) to your niece. Your sister
has given the niece a $60,000 gift. Your
niece’s cost basis is your $100,000 cost basis (not the $150,000 current value).
Example 2: You have a cost basis of $100,000. The house is
currently worth $150,000. Your sister sends you $110,000 after you deed the
house to your niece. You have a tax reportable capital gain of $10,000. Your sister
has given the niece a $110,000 gift. You have given a “gift of equity” of $40,000
(150K-110K) to your niece. Your niece’s cost basis is $110,000 (not $150,000).
*You are not allowed to claim a capital loss on this
transaction.
