Capital Gain taxes on home sale

[Paolo Santi]

Hello, 

back in 2009 my father build a house, and turned the title on my name as a gift, so I am the owner since then

The land was purchased for $13000 in 2006. 

My father begins constrution 2 years later and in 2009 gift the house to me.  He lived in that house since then 2009 - 2024 

I am selling the house today ( 2024 ) for $180,000  ( location of the house is California State) 

I never lived or used that house, and I don't have any construction receipts/document as we had theifts in the house and lost all. My father says he spent more that $180,000 in contraction and renovation. but I don't have prof of it. My father is 84 yeard old now and wants to live with me. 

I want to purchase a new property using this $180,000 as down payment. ( and avoid capital gain, maybe?) 

or I would like to pay off my actual mortgage with this money. ( and avoid capital gain, maybe? ) 

Am I allow to use this money like this to avoid capital gain taxes? or how best shall I do in order not to pay taxes? 

thank you.

Paolo. 

thank you for your help. 

[jtax]

I think you need to seek the professional advice of a CPA, enrolled agent, or tax attorney.  I'd suggest starting with an estate planning attorney in the state the property is located in. There are a number of involved issues that require careful thought and the application of the law to your facts.

A couple of general comments.

You cannot avoid or deferred taxes by rolling over the proceeds of a property sale to another property unless it is a business property and you do something called a like-kind exchange. Before about 1997 the tax law was different for your residence (which this is not).

You cannot defer capital gains by paying off your mortgage. The two are unrelated (by all means pay off your mortgage if you want, but it won't help with capital gains.)

Capital gains are equal to

the amount the property sold for (not including commissions/expenses of the sale) minus your basis.

your basis is the cost of buying the property (including land) plus the cost of improvements

When you are gifted property your basis is usually the basis of the person who gives you the property.

The "burden of proof" to substantiate these numbers is on the taxpayer. Without the required records, you might get help from something called the "Cohen Rule" Google it to get an idea, but ask your professional about how or if it applies to you.

There are other issues to deal with. Once cannot make gifts of more to one person of more than $18k (2024) or $12k in 2006. Above that the giver must file a gift tax return (form 709). Gifts are not income to the receiver, so no worries there. Gifts over the annual exclusion amount are totaled and reduce the amount you can leave upon your death without owing estate tax. That amount is very large (many millions, but could change) and so doesn't usually matter. But you are required to file the gift tax returns.

Whether your father gifted to you the cost of his the improvements is another issue for your local attorney. Perhaps it was a loan? But these situations are hard to analyze and draw conclusions when there are no loan or lease or gift documentation or expenses records. 

For others who may come across this, from a tax POV the easier thing would have been if your father owned the property all along, never gifting anything to you. If he lived in the property 2 of the 5 yrs before the sale he could exclude $250k of gain. On a $180k property with a high basis, that would mean no capital gains tax.