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Capital gains taxes on home that was obtained via quit claim deed

Grandparents bought their home in 1972.  Grandfather died in 1995, grandmother added me to the deed with her in 1998.  Grandmother lived in the home, I never did.  In 2002, the home was quit claim deeded to me.  Grandmother passed in 2016.  I am now planning to sell the home and I'm trying to figure out when the cost basis starts for capital gains purposes? 

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Capital gains taxes on home that was obtained via quit claim deed

If your grandmother gave you the home but retained a life estate or life tenancy (right to live there until she died), then you inherited a stepped up basis based on the fair market value on the date she died in 2016.  You can get this from a local appraiser using historical records.

If she deeded the house in fee simple, you have to determine your basis this way:


1. Start with the price your grandparents paid in 1972. (This will be in county records.)

2. Add any permanent improvements you can prove made between 1972 and 1995.  This is the cost basis when your grandfather died.

3. Your grandmother inherited a stepped up basis in her spouse's half of the property based on the fair market value in 1995.  You can get this from an appraiser using historical records.  Suppose the home cost $20,000 and was worth $60,000 when he died.  Your grandmother's 50% basis is $10,000 (plus half the improvements you can prove), and she gets a stepped up basis on her spouse's half at the time of his death ($30,000) so her total basis is now $40,000.

4. Add any improvements you can prove that were made between 1995 and 2002.

5. Subtract any depreciation that was taken for business use of the home (rental, home office) and subtract any casualty losses she claimed on her taxes.

6. The result is her basis in 2002.  Your grandmother gifted you her basis in 2002 (in my example, $40,000 plus the cost of improvements that can be proved) when she gifted you the home.

7. Add any permanent improvements that were made between 2002 and 2018, and subtract any additional depreciation and casualty losses.  The result is your basis as of 2018.

There's a huge difference between a deed in fee simple and a life estate when it comes to children inheriting property.  Hopefully you had proper legal advice at the time; lack of advice may cost you a small fortune in taxes.

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**

View solution in original post

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Highlighted
Level 15

Capital gains taxes on home that was obtained via quit claim deed

If your grandmother gave you the home but retained a life estate or life tenancy (right to live there until she died), then you inherited a stepped up basis based on the fair market value on the date she died in 2016.  You can get this from a local appraiser using historical records.

If she deeded the house in fee simple, you have to determine your basis this way:


1. Start with the price your grandparents paid in 1972. (This will be in county records.)

2. Add any permanent improvements you can prove made between 1972 and 1995.  This is the cost basis when your grandfather died.

3. Your grandmother inherited a stepped up basis in her spouse's half of the property based on the fair market value in 1995.  You can get this from an appraiser using historical records.  Suppose the home cost $20,000 and was worth $60,000 when he died.  Your grandmother's 50% basis is $10,000 (plus half the improvements you can prove), and she gets a stepped up basis on her spouse's half at the time of his death ($30,000) so her total basis is now $40,000.

4. Add any improvements you can prove that were made between 1995 and 2002.

5. Subtract any depreciation that was taken for business use of the home (rental, home office) and subtract any casualty losses she claimed on her taxes.

6. The result is her basis in 2002.  Your grandmother gifted you her basis in 2002 (in my example, $40,000 plus the cost of improvements that can be proved) when she gifted you the home.

7. Add any permanent improvements that were made between 2002 and 2018, and subtract any additional depreciation and casualty losses.  The result is your basis as of 2018.

There's a huge difference between a deed in fee simple and a life estate when it comes to children inheriting property.  Hopefully you had proper legal advice at the time; lack of advice may cost you a small fortune in taxes.

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**

View solution in original post

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