Tax on sale of house

When you sell a house that was gifted to you, you may have to pay capital gains tax based on the property’s appreciated value from the original donor’s purchase price.

Here are some key points to consider:

Determining the Cost Basis

• Carryover Basis: The cost basis of the gifted property is generally the same as the donor’s original cost basis. This means you inherit the donor’s purchase price as your basis.
• Adjusted Basis: If the donor paid gift tax, this amount can increase your adjusted basis, potentially reducing your capital gains.

Calculating Capital Gains

• Capital Gain: To calculate your capital gain, subtract the adjusted basis (original cost plus any adjustments) from the sale price of the property.
• Holding Period: The holding period for the property includes the time the donor owned it. If the combined holding period is more than one year, the gain is considered long-term and is taxed at a lower rate.
• Selling Expenses: You can deduct selling expenses such as real estate agent commissions, advertising fees, and legal fees from the sale price to reduce your taxable gain.

If this home is your Primary residence & you meet the requirements of Sec 121 exclusion, then you can exclude the capital Gain. If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.

@drewireland Thanks for the question!!