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snapjack543
Returning Member

sale of jointly held gifted rental property

Hi,

Sister and I were gifted a property 10 years ago.  We rented it continuously during that time and I paid all taxes/expenses and claimed all depreciation and income from the property since she did not wish to be involved.  We are now selling the property and would like to know how we can divide the proceeds to minimize capital gains. 

 

I will have real estate recapture tax to pay on top of the portion of the proceeds.  Say we split the proceeds 50/50 from the sale.  Assuming this is possible, would we each claim 50% of the basis we inherited for capital gains purposes?  In other words, if my sister claims 50% of the income from the proceeds, would I proceed as usual as well, claiming 50% of basis (despite having claimed 100% of the depreciation, income, property tax deductions, etc) over the years.  Apologies if this question is more confusing that it needs to be.

3 Replies
Carl
Level 15

sale of jointly held gifted rental property

Sister and I were gifted a property 10 years ago......would we each claim 50% of the basis we inherited for capital gains purposes?

 

First, correct terminology means everything here. There is a vast difference between "gifted" and "inherited". If the property was gifted to you two, then neither you nor your sister inherited anything. As a part of the gift received, you two were also gifted the giver's original cost basis. So if the property was purchased by the giver in say, 1980 for $25K and when gifted to you two it's FMV (Fair Market Value) was say, 100K, then the cost basis for both of you is the giver's purchase price of $25K.  If selling the property that cost basis is split between the two of you. But I strongly suspect you have another problem I'm fixing to make you aware of.

 

Since *YOU* rented it and *YOU* collected all the rental income, *you* paid all the expenses (Property taxes, mortgage interest, insurance, depreciation, etc) what cost basis did *YOU* use for depreciation? This "REALLY MATTERS" big time.

 

 

snapjack543
Returning Member

sale of jointly held gifted rental property

Thanks for the reply.  I hope I am using the terminology correct:  gifted.  The property was give to us by our father prior to his passing--i.e. it did not pass to us via his estate.  Thus, we assumed his original basis / purchase price, of say, 50k.

 

Since then, I have used 50K as the cost basis for depreciation during the last 10 years acting as 100% owner.  My sister has not one mention of this property in her taxes.

 

 

Anonymous
Not applicable

sale of jointly held gifted rental property

was your sister was on the title, because she would have to sign off on the sale?

 

I assume you kept all the proceeds, reported 100% of the sale on your return and took all the depreciation.      this creates some legal and tax issues. 

 

again if she was on the title,  consult a lawyer because I believe 

she was entitled to half the proceeds and should have reported 50% of the sale on her return and you should have reported only 50%.   you  were only entitled to depreciation on 50% of the basis.    what happens if your sister can legally come after you for 50% of the proceeds and does?    further there's a question of whether a partnership return should have been filed for each year your sister and you owned it.   there can be substantial penalties to fail to file the return if required.      

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