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TardyTax
Level 1
1 Best answer

Accepted Solutions
Opus 17
Level 15

<deleted>


@Critter-3 wrote:

1) What is my cost basis in determining capital gains (if any), as my cash contribution to the property wasn't exactly "on paper"?    You were gifted 1/2 of the property so the 1/2 of the other person's basis is now your basis.  And did they file a gift tax return and pay any gift tax on the gift ?  You also need to have the fair market value as of the date of the gift to properly figure if you have a taxable gain or deductible loss.   Seek local professional assistance with the matter. 

 


 

If we treat this is a gift, then the taxpayer's cost basis is half the purchase price. Simple, end of story.

 

If this is a purchase at below market price, things can get tricky.  Let's suppose the land cost $50,000 and was worth $50,000 at the time of the gift, and you paid $10,000 for half.  You then received a "gift of equity" in the amount of $15,000, and your basis is still half the original buyer's basis (each owner now has a basis of $25,000.)

 

But, suppose the land was purchased for $20,000, and at the time of the gift it was worth $50,000, and you paid $10,000 for your share since that's half of what the original owner paid.  You still get a gift of equity of $15,000, but I'm not sure what your basis is.  It's probably still only $10,000 (half the original purchase price) but someone smarter than me needs to review it.

 

If any of the gifts were more than $14,000, then the giver was required to file a gift tax return at the time.  No tax was owed, but the return was required anyway.

 

Certainly if you sell the property for $100,000 (your share $50,000), and depending on what your basis is, the income could affect other things.  Long term capital gains are taxed at 0%, 15% or 20% (this is not enough money to reach the 20% level) which is less than the tax rate for regular income.  But just having this amount of extra income could affect your eligibility for other deductions and credits.  We can't know for sure without more information about you. 

 

 

 

 

 

.  If the owners had made material improvements to the land, then each co-owner would also be able to claim half the cost of the improvements as an adjustment to basis, but I am assuming that does not apply since this is vacant land.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

4 Replies
Critter-3
Level 15

<deleted>

1) What is my cost basis in determining capital gains (if any), as my cash contribution to the property wasn't exactly "on paper"?    You were gifted 1/2 of the property so the 1/2 of the other person's basis is now your basis.  And did they file a gift tax return and pay any gift tax on the gift ?  You also need to have the fair market value as of the date of the gift to properly figure if you have a taxable gain or deductible loss.   Seek local professional assistance with the matter. 

 

 

2) Will the sale affect how I'm taxed on other income? Can it change my tax bracket, etc.?  It could possibly change a lot of things on a return including the tax bracket.  I highly recommend you seek local professional guidance on how this sale could effect you and get educated in possible alternative ways to reduce the tax liability if possible. 

Opus 17
Level 15

<deleted>


@Critter-3 wrote:

1) What is my cost basis in determining capital gains (if any), as my cash contribution to the property wasn't exactly "on paper"?    You were gifted 1/2 of the property so the 1/2 of the other person's basis is now your basis.  And did they file a gift tax return and pay any gift tax on the gift ?  You also need to have the fair market value as of the date of the gift to properly figure if you have a taxable gain or deductible loss.   Seek local professional assistance with the matter. 

 


 

If we treat this is a gift, then the taxpayer's cost basis is half the purchase price. Simple, end of story.

 

If this is a purchase at below market price, things can get tricky.  Let's suppose the land cost $50,000 and was worth $50,000 at the time of the gift, and you paid $10,000 for half.  You then received a "gift of equity" in the amount of $15,000, and your basis is still half the original buyer's basis (each owner now has a basis of $25,000.)

 

But, suppose the land was purchased for $20,000, and at the time of the gift it was worth $50,000, and you paid $10,000 for your share since that's half of what the original owner paid.  You still get a gift of equity of $15,000, but I'm not sure what your basis is.  It's probably still only $10,000 (half the original purchase price) but someone smarter than me needs to review it.

 

If any of the gifts were more than $14,000, then the giver was required to file a gift tax return at the time.  No tax was owed, but the return was required anyway.

 

Certainly if you sell the property for $100,000 (your share $50,000), and depending on what your basis is, the income could affect other things.  Long term capital gains are taxed at 0%, 15% or 20% (this is not enough money to reach the 20% level) which is less than the tax rate for regular income.  But just having this amount of extra income could affect your eligibility for other deductions and credits.  We can't know for sure without more information about you. 

 

 

 

 

 

.  If the owners had made material improvements to the land, then each co-owner would also be able to claim half the cost of the improvements as an adjustment to basis, but I am assuming that does not apply since this is vacant land.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

TardyTax
Level 1

<deleted>

 
Opus 17
Level 15

<deleted>

If this was a “gift” and so was your payment a “gift”, was it more than $14,000 and did you file a gift tax?

 

You might only be a 1/3 owner, it will depend on how the land was titled before the gift.  It may also depend on whether you live in a community property state and when and how the owner or couple acquired it.  Even if the property had been owned by two people, they could have given you a half interest or any other share of ownership they wanted to. If it is not written down, then the IRS will usually assume it was 1/3 if there were two owners before hand or 1/2 if there was one owner before hand. Ideally, this would have been specified in writing at the time.   Will you be dividing the proceeds in half or thirds?

 

You may benefit from a legal review.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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