I have a unique situation. My brothers dad who was like a dad to me passed away in June. He lives in a community where the land is owned by the corporation and he only owns the home/parcel. The deed/title is in the name of the corporation and the corporation simply issues a site cabin permit and a certificate of ownership for the property itself. Prior to his passing, he signed the certificate over to me in my name to transfer ownership, so it wasn't left in the estate. The corporation said since my intent is to sell it, they weren't going to process the transfer with the county into my name, they would simply complete the transfer with the county once we sell it and get it transfered to the new owners names. I believe the home was valued at $177 last and we sold it for $300k. It is technically only in my name, but the profit will be split 3 ways between myself, my sister and my brother. Since he transferred to my name prior to his death and it wasn't left in an estate, and it is parcel only not land, will I still be subject to capital gains or am I exempt? And if I am still subject to it, how will I handle that on taxes since I have to split the money but its only in my name?
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Your "unique situation" is much too complicated to handle here in an online forum, and there is a great deal of information missing. You need a lawyer to clarify exactly what is owned, who owns it, what is or is not in the estate, who inherits what, and what the tax effects are. You might need both an estate lawyer and a tax lawyer.
You have mixed up past, present, and future tenses, so it's hard to tell what has already happened. It seems like you might have already sold the property. Also, among many other loose ends, it's not clear whether ownership was actually transferred to you before the sale.
If the property was given to you before the owner passed away, you did not inherit it. It was a gift. (And a gift tax return will have to be filed on the giver's behalf.) Your basis for a gift is the previous owner's basis, which is probably what he paid for it. In that case, your taxable gain is the increase in value from when he bought the property. But if the father retained a right to live in the home, the gift might not have been completed. This is one of the things you need a lawyer to clarify.
If you were actually the sole owner of the property when it was sold, all of the proceeds of the sale, and all of the capital gain, are yours. If you choose to give some of the money to your siblings (half-siblings?), that is gifts from you to them. But you cannot give them the capital gain.
If there was not actually a completed gift to you, and the property legally remained in the estate, there will be little or no capital gain, and therefore little or no tax. That's because the basis of inherited property is the fair market value on the date of the owner's death.
But everything I've said is just background information and speculation, because the details of the situation are very unclear. So don't rely on what I said. Get a good lawyer.
As others have said, you situation is too complicated for "do it yourself" tax filing. That said, there are a couple of common items to be aware of: 1. "life estate" and 2. Taxes "follow the money".
The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you father paid for it). But there is an exception for the gift of his home, where he retained the right to live there ("life estate"). "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")
More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1
A life estate does not have to be explicitly established in the deed/document. Your father probably had an "implied life estate." If so, that would give you the stepped up basis. There is case law on this.
http://accessiblelaw.org/Documents/LifeEstates-Inheritances.pdf (IRS document)
Under the follow the money principle, each testamentary beneficiary will report their share of the capital gain. But if the ownership certificate was outside the estate, that may not apply. But, under the stepped up basis rule, there's probably little or no capital.
As far as the value of the property, this is where it is a bit tricky. We haven't had it appraised. The current tax records show the home itself is valued at $177k, but the new owners offered $300k becuase they wanted the home so bad, even if it meant to offer more than it is worth. My dad took ownership of the home a few years ago and it was "gifted" and transferred to his name from his mom. He passed away June 10th, he signed over the certificate in my name about a week before he passed. The Living Trust document states all property will be left and distributed equally amongst the executors (myself and my sister), however we never actually put the living trust on the house/deed. So not sure if we would consider this a gift or inheritance, and if we are selling the home for more than it is worth if we will owe the capital gains. I just accepted an offer on the home and we are going into escrow.
@lfreitas21 wrote:
My dad took ownership of the home a few years ago and it was "gifted" and transferred to his name from his mom.
Well that's a new complication that you haven't mentioned before. It might make a huge difference, or no difference at all, depending on the answers to some of the other questions that haven't been resolved yet.
You will have to get an appraisal. The property tax valuation means nothing, and cannot be used for income tax reporting. But the as-of date of the appraisal that you need will depend on some of the unanswered questions.
Before you close the sale, get together with a lawyer and clarify who are the actual owners of the house who are selling it. If possible, arrange to have the proceeds of the sale paid separately to you and your sister, so you don't end up with one of you having to pay all the tax and gift a large amount of money to the other.
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