You qualify for the exclusion, assuming you meet the rules below. However, your basis in the home is not the Fair Market Value at the time of the gift, but the adjusted basis. This is the amount you mother purchased it for, plus the cost of any improvements. You would contrast that amount to the sales price, minus closing costs.
Does Your Home Sale Qualify for Maximum Exclusion
The tax code recognizes the importance of home ownership by providing certain tax breaks when you sell your home. To qualify for these breaks, your home must meet the Eligibility Test , which is explained later.
How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.
- You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
- You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
- You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude
Reporting Gain or Loss on Your Home Sale
Determine whether you need to report the gain from your home. You need to report the gain if ANY of the following is true.
- You have taxable gain on your home sale (or on the residential portion of your property if you made separate calculations for home and business) and don’t qualify to exclude.
- You received a Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.
- You wish to report your gain as a taxable gain even though some or all of it is eligible for exclusion. You may wish to do this if, for example, you plan to sell another property that qualifies as a home within the next two years, and that property is likely to have a larger gain. If you choose to report, rather than exclude, your taxable gain, you can go back later and undo that choice by filing an amended return, but only within 3 calendar years after the year of sale.
If NONE of the three bullets above is true, you don’t need to report your home sale on your tax return.
