Solved: If I get a property now as a gift do I pay taxes when I sell the property in the future? The property has equity as of today.
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If I get a property now as a gift do I pay taxes when I sell the property in the future? The property has equity as of today.

the property is going to be used as primary residence.
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If I get a property now as a gift do I pay taxes when I sell the property in the future? The property has equity as of today.

You need to know the cost basis of the property.  That has nothing to do with the current value or current equity. Cost basis is the amount of money the original purchaser has invested in the property -- purchase price plus certain closing costs plus the cost of any permanent improvements that have been made.

Then, when you sell, your capital gains is the difference between the selling price and the cost basis.  (Capital gains has nothing to do with the outstanding loan balance, equity, or actual cash you receive.)

If this is a personal home that you owed and lived in for at least 2 years before you sell, you can exclude the first $250,000 of capital gains from taxation (or $500,000 if married filing jointly).  Any gain over the exclusion limit is taxed as long term capital gains.  If this is not your personal home or you sell after owning it for less than 2 years, the entire capital gains is taxed.  

If you are audited, the IRS won't give you any cost basis unless you can prove it, so ask the giver for copies of all their records, and if they don't have them any more, you may be able to look through county land records to at least get the purchase price.

*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".**

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Highlighted
Level 15

If I get a property now as a gift do I pay taxes when I sell the property in the future? The property has equity as of today.

You need to know the cost basis of the property.  That has nothing to do with the current value or current equity. Cost basis is the amount of money the original purchaser has invested in the property -- purchase price plus certain closing costs plus the cost of any permanent improvements that have been made.

Then, when you sell, your capital gains is the difference between the selling price and the cost basis.  (Capital gains has nothing to do with the outstanding loan balance, equity, or actual cash you receive.)

If this is a personal home that you owed and lived in for at least 2 years before you sell, you can exclude the first $250,000 of capital gains from taxation (or $500,000 if married filing jointly).  Any gain over the exclusion limit is taxed as long term capital gains.  If this is not your personal home or you sell after owning it for less than 2 years, the entire capital gains is taxed.  

If you are audited, the IRS won't give you any cost basis unless you can prove it, so ask the giver for copies of all their records, and if they don't have them any more, you may be able to look through county land records to at least get the purchase price.

*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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