I was quit claim deeded to my mothers property as JTWROS. After her death, is my cost basis based on the value at the time of her death or from when she bought in 1950?

[alyssache02]

Property is in Michigan, my mom was original home purchaser and I contributed nothing to purchase.

[Anonymous_]

The one-half that you acquired from your mother (by operation of law as JTWROS, when she passed) is stepped up to the fair market value on the date of her death.

[ColeenD3]

If I understand correctly, you were gifted half the house and inherited the other half on her death.

If so, you have to treat each half differently. The portion that you were gifted has her original cost basis. The half you inherited has the stepped up basis of Fair Market Value at her time of death. If you sell directly after, the FMV should stay the same. However, if you hold on to the house and the FMV increases, you do not get to take advantage of that increase.

[Bchee]

The quit claim deed was executed in June 2018, so I guess I was gifted 1/2 the house then and inherited the other half upon her death in April 2020.  The house was purchased for $15.000 in 1950 and was sold almost immediately after her passing in 2020 (so FMV is same)  for $90,000.  So I should be accountable for half of sales price which is $45000 - $15,000 = $30,000 tax liability, correct?  

One other item is that my parents got divorced in 1973, do I use an original cost basis from 1950 or from a value derived in 1973?  I'm not sure this matters.

[Bchee]

The quit claim deed was executed in June 2018, so I guess I was gifted 1/2 the house then and inherited the other half upon her death in April 2020.  The house was purchased for $15.000 in 1950 and was sold almost immediately after her passing in 2020 (so FMV is same)  for $90,000.  So I should be accountable for half of sales price which is $45000 - $15,000 = $30,000 tax liability, correct?  

One other item is that my parents got divorced in 1973, do I use an original cost basis from 1950 or from a value derived in 1973?  I'm not sure this matters

[Anonymous_]

You have a split basis:

One-half of your basis is the fair market value on the date of death of your mother (which you did not inherit but acquired upon her passing by operation of law).

One-half of your basis is the gift from your mother in June of 2018. Since the sale resulted in a gain and the fair market value at the time of the gift was greater than your mother's basis, your basis for this half is a carry over basis (i.e., you take your mother's adjusted basis for this one-half). Needless to say, you need to figure out your mother's basis as a result of the divorce and whether that altered her basis (which it is likely to have done).

[gsmentko]

In the Q&A I was reading about a similar situation, I'm trying to understand mine.  Two sides to this, right?

I was basically gifted 1/2 the house in 2016 and then inherited 1/2 in 2020, Correct?

He Purchased in 2009 at $81k

Added me to the deed (Gifted?)  in 2016 - Estimating $100k value per Zillow?

Inherited (at time of death) in 2020 - Estimating $130k value per Zillow?

Sold house in 2021 (after fixing up quite a bit) for $172k, Net proceeds after mortgage, realtor fees, etc... $101k

So, a few questions...

Do I use the sale price of $172k or my proceeds of $101k 

Do I use the $81k as the original cost basis or $40.5k since I obtained half the house in 2016?

I was thinking the following:

Deeded half - $50.5k (1/2 Net Proceeds) less $40.5k (1/2 Purchase price)  = $10k Capital gains

Inherited half - $50.5 (1/2 Net Proceeds) less $65k (1/2 value in 2016) = -$14.5k Negative Capital Gains

Adding together both halves leaves a Balance equal to a negative $4.5k, means my Capital Gains are zero?

Any clarification is appreciated,

Greg

[gsmentko]

My question is based on this I put in the SUBJECT, but disappeared when I posted:

Re: Son bought house in 2009, added me to deed (Quit Claim) in 2016, passed away in 2020, I sold house in 2021

Greg

[DianeW777]

Question: I was basically gifted 1/2 the house in 2016 and then inherited 1/2 in 2020, Correct? Yes, this is correct.

• $81,000 x 50% + $130,000 x 50% = $105,500 (your numbers above)

Question: Sales Price- Do I use the sale price of $172k or my proceeds of $101k 

• Use the sales price and when asked about selling expenses enter that amount (do not include any mortgage payoff).

You can enter one sale since you have long term holding period for both the gift and inheritance. A mortgage payoff is not an expense in any part of the sale.  You are using the full cost basis of the property (no reduction for loan balance and the payoff has no part in the formula).

There will be a gain on the sale. You can enter this under Investment Income as a second home sale or inherited property.  The results will be the same.

The sale of inherited property can be entered using the following instructions.  

1. Open or continue your return (you can choose the Search box and type 'sale of second home' then use the Jump to link to enter your inherited sale) or follow the menu.
2. Under Wages & Income scroll to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Answer Yes on the Did you sell any stocks, mutual funds, bonds, or other investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the OK, let's start with one investment type screen, select Other, then Continue
5. On the Tell us more about this sale screen, enter the name of the person or institution that brokered the sale
6. On the next screen, select  Other (choose this also for inherited homes) then select  I inherited it under How did you receive this investment?

@gsmentko 

[Edited: 03/24/2022 | 1:51p PST

]

[gsmentko]

 THANK YOU!  Makes sense, a few more questions moving forwards.

1) I'm using the DVD/Computer version not on-line.

     So, I went to INVESTMENT INCOME, Then Stocks, Mutual Funds, Bonds, Other... 

     Then entered the above info on the next page with Long Term Capital Gains, 

     Then on the next screen "SELECT ANY LESS COMMON ADJUSTMENTS THAT APPLY"

         I entered the closing expenses in "Fees or Selling Expenses" and

         I entered Mortgage payoff in "Some or all proceeds from this sale DO NOT BELONG TO ME"

(Does all of this sound correct?)

2) Is there a worksheet to show all of this math so the IRS understands? 

     For example how did I arrive at $105.5k Cost basis?

     Also, we did about $10k in improvements before selling, do I just add $10k to the $105.5k = $115.5k?

Thanks again,

Greg

[AmyC]

1. No. paying off the mortgage comes from your money. A mortgage has no relevance when selling a house.  What you do with your share of the money is not important to the IRS.

2. No. You should have records of your purchase price plus improvements if the IRS decides to ask. Yes, cost basis = purchase + improvements.

@gsmentko

[gsmentko]

That didn't make sense to me.   If this was the scenario, would It be negative to me?

Buys house for $100k

increases in value to $500k and get second mortgage of $300k, (total owed bank $400k)

Person dies and I inherit it and sell it at FMV OF $400k.

I have enough to pay off the mortgage of $400k 

Then $400k - $100k = $300k I would owe Capital gains on?  I would owe the IRS $30k and lose money on this inheritance?

Greg

[ErnieS0]

Yes it is possible to have a negative sale @gsmentko. A common example is a foreclosure where a property is sold for less than the mortgage. In those cases, the taxpayer will report the negative difference as income if the bank forgives the debt.

In your situation, you will have $150k capital gain: $400k sales price - (1/2 of $100k + 1/2 of $400k) = $150k.

You may qualify for a home sale exclusion. You can also add the cost of improvements to your purchase price to lessen the gain.