My sister and I inherited Moms house. she is buying my half 60K. Is that taxable for me. Its in probate and I am the personal representative.Is that taxable?

[SweetieJean]

Did the Estate inherot the home, or did you and your sister do so directly via Mom's will?

[wgreggking]

Mom and Mad bought the home5yrs ago. They are deceased, I am the personal representative of an informal probate in Az. Not court supervised. just a filing thing. The will says that my sister and i are to divide the assets. and has the paper from the court. Just the home and a small amt of cash. Total assets about 120K my sis will give me half. 60k.My sis  and her husband plan to move into the home. We are going to transfer the deed to her as part of the distribution of assets  is that 60K  taxable? Or is it still an inheritance? Or they each  could gift us 14k (sis & hubby) this year and next year, 56K then the rest later. Thanks

[wgreggking]

Mom and Dad above

[TaxGuyBill]

Your "basis" (cost) is the Fair Market Value when your last parent died.  You are only taxed on the gain (profit).  In other words, if the Fair Market Value on the date of death was $120,000 ($60,000 for your half), you would have $0 gain if you sold it for $60,000.  That means no tax.

However, you may consider a tax professional and/or an estate lawyer to really see everything.  It needs to be determined if the house and other assets went directly to you, or to the "Estate".  If they went to the Estate, the Estate may need to file a tax return.

[Opus 17]

Right, having it go into an "estate" makes it more complicated.  Just take 50% title in each of your names, close the estate with the court, then sell her your half share.  Clean and simple.

[Opus 17]

Unless there is $60,000 of cash and a $60,000 house, then your sister will owe you money from her own funds, right?

My suggestion is that you divide the home and the liquid assets equally, so that you each own a half share of the house.  You won't owe estate tax on inheriting the house or money.

Once the transfer of ownership is recorded in the county clerk's office, you can proceed to sell your share in the house to your sister for half its value.  Your sister will pay you cash out of her inheritance and make up the rest of the cash from her other resources. You won't owe any income tax on the proceeds because your cost basis is equal to the value of the home on the date of your parent's death.  If you sold the home for more than its inherited value, you would owe capital gains on the difference.   Assuming that the value of the house on the date of death is $100,000, then your share has a cost basis of $50,000.  If you sold it for $51,000, you would have a taxable gain of $1,000.  But if you sell it for its inherited value, you have a zero gain and owe no tax.

It will be better to do a legal sale than a gift.  Technically you can give your sister your half of the house and she can give you some money, but that will run into problems because if anyone checks, it will look like you were trying to disguise a sale and raise suspicions.  It will be cleaner to simply sell your interest to her for half the value.  You won't owe income tax, although you may owe a transfer and recording tax to the county (which you would also owe if it was a gift). You will probably want to have the sales paperwork processed and recorded by an attorney so you don't accidentally cause problems down the road.  It should only cost a fraction of what she is going to pay you.

If your sister doesn't have the cash to pay you in full for your half of the house, you could sell her the house and take back a mortgage.  She would own the house in full, and she would owe you monthly payments with interest until the balance is paid off.  If you do this, the interest is taxable income but the principle is not.  And if you don't charge interest because it's family, the IRS will make you pay tax as if you did charge interest (it's complicated), so get extra attorney help if you want to carry a mortgage for your sister.

[Geo2022]

Given this is California, you have to ask your accountant about your specifics... But thanks to Proposition 13 and Prop 19,  you can still transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes as long as we reside in our inherited home as a primary residence, moving in within 12-months of course...  But the key here is a "buyout of sibling property shares", if your sibling wants to sell out – allowing you to keep your parent's home while keeping a low property tax base, using a loan to an irrevocable trust from a good trust lender, in conjunction with Proposition 19, with the trust lender helping you with a parent-to-child exclusion to avoid property tax reassessment – plus buying out your sister  for much  more than if she sold out to an outside buyer with a realtor involved, charging a 6% commission, legal fees, etc.  This is win-win for everyone!  I would suggest that you take a look at the CA State Board of Equalization at https://www.boe.ca.gov and read up on details at an established property tax relief blog like  https://propertytaxnews.org or Wikipedia... And perhaps get some facts from an established  trust lender like https://cloanc.com  The more we know, the better off we’ll be dealing with a complex situation like this even though an attorney and a trust lender  will be doing all the heavy lifting.  It’s good to know what’s going on.