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youngertwinby9
New Member

My mom sold her 30-year old cottage last year. They had it built. She has many receipts, but not all. How does she determine it's original value for capital gains?

The cottage was built in the mid 80's.  My parents did some of the work themselves.  It was not their primary resident, so my mom owes capital gains from it's sale.  My dad was on the title, but passed away 2 1/2 years ago.  How does she determine the original value of the cottage, without all the receipts (or does she just estimate), and how does my father's death (before the cottage was sold) factor in?

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Accepted Solutions
TomD8
Level 15

My mom sold her 30-year old cottage last year. They had it built. She has many receipts, but not all. How does she determine it's original value for capital gains?

"how does my father's death (before the cottage was sold) factor in?"

If they owned the property as joint tenants, at your father's death his 50% share would receive a "stepped-up" cost basis to half the cottage's fair market value at that time.  The cost basis of your mother's 50% would remain unchanged - at 50% of the home original cost basis. 

So your mother's cost basis today would be her 50% of the cottage's original cost basis PLUS the stepped-up basis of your father's 50% share at the time of his death.

Example:

Let's say the cottage's original cost was $100,000 - giving them each a cost basis of $50,000.  Let's say its fair market value when your father died was $200,000.  Thus, at his death, the basis of his 50% share would step up to $100,000.

Your mother's new cost basis would then become her original basis of $50,000 PLUS the $100,000 value of her husband's stepped-up basis at the time of his death, for a total of $150,000.

SO - in order to calculate her cost basis at the time of sale, you'd have to know two numbers: the original (adjusted)cost basis of the home, and it's fair market value at the time of your father's death.

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

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2 Replies
TomD8
Level 15

My mom sold her 30-year old cottage last year. They had it built. She has many receipts, but not all. How does she determine it's original value for capital gains?

"how does my father's death (before the cottage was sold) factor in?"

If they owned the property as joint tenants, at your father's death his 50% share would receive a "stepped-up" cost basis to half the cottage's fair market value at that time.  The cost basis of your mother's 50% would remain unchanged - at 50% of the home original cost basis. 

So your mother's cost basis today would be her 50% of the cottage's original cost basis PLUS the stepped-up basis of your father's 50% share at the time of his death.

Example:

Let's say the cottage's original cost was $100,000 - giving them each a cost basis of $50,000.  Let's say its fair market value when your father died was $200,000.  Thus, at his death, the basis of his 50% share would step up to $100,000.

Your mother's new cost basis would then become her original basis of $50,000 PLUS the $100,000 value of her husband's stepped-up basis at the time of his death, for a total of $150,000.

SO - in order to calculate her cost basis at the time of sale, you'd have to know two numbers: the original (adjusted)cost basis of the home, and it's fair market value at the time of your father's death.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.
youngertwinby9
New Member

My mom sold her 30-year old cottage last year. They had it built. She has many receipts, but not all. How does she determine it's original value for capital gains?

This answered part of the question, but not the main question.  How can my mom determine the initial value of her cottage if she doesn't have all the receipts?
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