Establishing purchase prices, sales price, cost basis for capital gains

[Lamb433]

I purchased a home with my spouse and my sister in 2012 for $500,000.  We all have lived there full time since 2013 as our primary residence.  All 3 names are on the deed as joint tenants w/ right of survivorship.  My sister put down the down payment and the mortgage is solely in her name.  She makes the monthly payment solely, while we split the utilities and we pay for other household items.  We take care of her after she sustained a traumatic injury. She has claimed the property taxes and the mortgage interest each year and we have claimed none of it.  We are planning on selling the home in the next year or two.  Assuming tax laws do not change, and we sold the home for $1.3 million, how do we calculate the purchase price, sale price, costs adjustments, and capital gains.? Are all numbers split into 1/3's or does my sister claim 100% of everything? 

Please advise!

@Lamb433 

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[Hi Palms]

Sounds like your sister gave you and your spouse a gift of 1/3 each of a house purchased for $500,000 and she should have filed a gift tax return for that year - 2012. So, you and your wife received a gift worth 2/3 of $500,000 or $333,333.

You and your wife would use $333,333 as your basis and 2/3 of the $1.3 million as your sales proceeds, less selling expenses. You and your wife would have a gain of approximately $533,325 for which you could use the home sale exclusion to exclude $500,000 of that gain, leaving a gain of $33,325 to report as taxable. 

[RachelW33]

To add on to Hi Palms' response, since all three of you are on the deed and meet the two-year residency requirement, your sister also qualifies for the $250,000 home sale tax exclusion.

For more information, please check out these resources:

• Is the money I made from a home sale taxable?
• Topic no. 701, Sale of your home

@Lamb433