Sell of a house

[ncalb55]

My wife and her 7siblings inherited a house from there parents and I purchased 2 of the siblings share of the house for 2000 dollars each.

we sold the house for 190000 dollars and after expenses we received 21000 dollars each except I received 42000 dollars and we had to pay 2 of the siblings 9000 dollars each ford paying the loan off on the house. I had a lot of time invested in getting house ready to sell along with several thousand dollars in materials. How and where do I stand with taxes. I am also disabled.

 I assume the siblings don’t pay any tax

[tagteam]

You will likely need to add some details and clarify some statements.

First, you indicated you purchased two of the siblings' shares for $2000 each. Is that a typo and is the real figure $20,000 each (which I presume it is)?

Next, were you the only party who purchased materials for the house and were the materials for improvements?

Finally, what were the circumstances surrounding the payment of $9,000 to two of the siblings? Was the property encumbered by a mortgage as of the date of death?

Generally, you would use whatever you paid as your basis (I presume that to be $40,000), add any costs you incurred for improvements, and then subtract that total figure from your share of the proceeds (which I presume to be $42,000) less selling expenses.

[ncalb55]

There was a mortgage at death of approximately 20,000 dollars of which 2 siblings 

paid off. I purchased 2 shares from 2 of the siblings for 2000 two thousand dollars each. I done the majority of the work on the house which was over a 3 year period.

 I had over 400 hours labor not including the driving which was 12 hours each trip and thousands of dollars in materials . Everyone was suppose to help keep the house up but didn’t. My wife and I did 96% of the work. We did rent the house for 5 months at 1000 dollars a month to help with materials. That’s about all. These materials were for upkeep not improvements. We paid one of the siblings after the sell 9300.00 for paying off mortgage and the others paid the other sibling.

[NCperson]

there are still missing details.

1) what was the market value of the house when the parents died? THAT is the "stepped up cost basis" of the home and that cost basis gets split 8 ways and I assume each of the 8 siblings inherited equal share or 12.5% of the house. 

2) you bought two of those eight shares for $2,000 each.  In return you owned 25% of the house value (and then your wife owned another 12.5%).  Your cost basis on those two shares is $2,000 per share.  Your wife's cost basis remains the same as it was calculated in step 1.  Her two siblings who sold to you have a capital transaction where the cost basis is what was calculated in step one and the sales proceeds are $2,000  that they can report on their taxes.  Please confirm you received 25% of the ownership in the home in return for the $4,000 payment ($2,000 each to two siblings)

3) assuming the 'we' means the 7 people who own the house, technically each must report their fair share of the income and their fair share of the expenses.... you comments appear to indicate that is going to be a big wash, so probably not worth the effort, but it is technically required

4) how much did the house sell for when you and all the in-laws sold?  what was the mortgage balance - $20,000? - when the house sold?

5)  why did you pay off the mortgage on behalf of the others? that could be construed as a gift with no further tax implications

6) your sweat equity (labor) has no tax implications - there is nothing to claim.

7) was there a closing statement from a lawyer's office detailing the recent transaction and indicating how much CASH each of the in-laws and you received? 

[ncalb55]

The tax value was 239,000 the reality company had it appraised at 205,000 and we sold it for 190,000 with 5000 of that held in escrow to replace a ac unit.

 I did receive 25% from 2 siblings for 2000 each and my wife 12.5% but hers was inherited so I assume there will be no tax on her part. As for my labor the house couldn’t have been sold like it was without the repairs I did so your telling me that was worth nothing.

[ncalb55]

Mortgage came to 3100.00 each share so my wife and I owned 3 shares so we paid her brother 9300.00 and his share was 3100.00 so that added up to 12400.00 which was what he paid on mortgage and the others paid her sister the same.

just for your knowledge all this wouldn’t be such a mess if the person is here parents left in charge of this had paid the house off with the money they left and the condo he sold instead of writing himself 72,000.00 in check’s. I know that has nothing to do with this house just some relief off my chest.

[NCperson]

it might be better to sit down with an accountant as this is hard to decipher, but I will give it my best shot:

1) the house was worth $205,000 as of the date of death (you were not clear if the appraisal was at the time you put it on the market or at the date of death - that distinction is VERY important) - but I am assuming at the date of death.   That is $25, 625 split 8 ways

2) there was a mortgage of $24,800 remaining on the house.  that is $3,100 split eight ways

3) You purchased a 25% interest for $4,000. (two shares)   Really, you paid $5,100 for the share and took on the obligation of $3,100 for each share you bought and that nets to the $2,000. 

4) the house sold for $190,000.  You can reduce that by the closing costs, but for simplicity I will assume no closing costs.  That is $23, 750 split 8 ways.   (I didn't deal with the $5,000 AC holdback, but assuming that money was spent, the the house really sold for $185,000 and all the sale numbers can be reduced by $625 split 8 ways to reflect that)

5) your wife has a capital loss of $23,750 - 25, 625 or  $1,875.  that can be placed on her taxes.

6) you have a capital gain of $23, 750 - $5,100 or $18,650 TIMES 2 or a gain of $37,300.  Assuming you kept all the rents, that increases your gain and assuming you paid all the maintenance expenses, that reduces your gain.    Again, your 'sweat equity' is not part of the equation. 

does that help?