They put their home in my name before passing.
Unfortunately, that means any activity with the home has absolutely nothing to do with their passing, their will, or their estate. The property was not inherited by you. The fact is, it was gifted to you, by your parents, before they passed. More than likely IRS Form 709 - Gift Tax Return, will need to be filed with the Treasury department on their behalf, since they obviously can't file it themselves now. A few things to uderstand about the form 709.
- The IRS Form 709 - Gift Tax return has absolutely nothing what-so-ever to do with taxes or tax returns.It is a completely separate form that is filed all by itself.
- The name of the form can be misleading. There is no tax assessed by any taxing authority on anyone.
- The giver of the gift is required to file the form if the value of the gift given in any one tax y ear exceeds $15K. I'm quite certain the value of the house exceeds that by quite a bit.
- The recipient of the gift (that's you) is not required to report anything to any taxing authority concerning their receipt of the gift.
- When you receive a gift as you have, you receive more than just the property itself. You also receive the original cost basis of the property. So if your parents paid $30K for the property 30 years ago, the fact it may be worth $300K at the time they gifted it to you doesn't matter. Your cost basis, is their cost basis.
- If the property was used by your parents at any time while they owned it, for any business use before being transferred to you (such as a rental) then you also receive all the prior depreciation they took on the property. (or were required by law to take if they didn't take that depreciation.) This will lower your cost basis even more.
Since you are the administrator of their estate, that means you're doing their personal (I assume joint) 1040 tax return for everything up to the date of their passing, and possibly a 1041 Estate Return for anything after their passing. The IRS Form 709 will be completed on the personal side, and not the estate side. This is because the transfer of the property occurred while they were still alive.
The value of the gift will be subtracted from their lifetime maximum amount they can pass through inheritance (11.4M if joint). So even though it will most likely not affect any inheritance received by you, it still needs to be filed. Being that the transfer occurred so close to their passing, if you don't file the 709, it very will "might" be noticed. So file it.
Since you were/are the sole owner of the property prior to the sale, that means "YOU" pay all taxes on any gains realized on the sale. If you decide to share the proceeds with other siblings, the tax liability is still on you. However, if the amount you gift to any one person exceeds $15K in any one tax year, then you are required to report the gift to the IRS on the form 709. Again, nobody will be taxed on the gift. But you are required by law to report it if the value given in any one tax year to any one person exceeds $15K.
