Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
waukegancty
New Member

Is gifted real estate treat the same as if it were inherited for calculating capital gains?

The apartment is in Poland and not subject to local taxes.  The Mother owned it and transfered the property to her daughter before she passed.  Does the daughter calculate capital gains from the date of the transfer to the date of sale?

1 Best answer

Accepted Solutions
Hal_Al
Level 15

Is gifted real estate treat the same as if it were inherited for calculating capital gains?

Q. Is gifted real estate treat the same as if it were inherited for calculating capital gains?
A. No, but maybe. The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (seehttp://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est... which states in part "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

Q. Does the daughter calculate capital gains from the date of the transfer to the date of sale?
A. No. Gain is either from your mother's original acquisition date (if considered a gift) or from her date of death (if the life estate rule  applies).

View solution in original post

2 Replies
Hal_Al
Level 15

Is gifted real estate treat the same as if it were inherited for calculating capital gains?

Q. Is gifted real estate treat the same as if it were inherited for calculating capital gains?
A. No, but maybe. The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (seehttp://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est... which states in part "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

Q. Does the daughter calculate capital gains from the date of the transfer to the date of sale?
A. No. Gain is either from your mother's original acquisition date (if considered a gift) or from her date of death (if the life estate rule  applies).
Critter
Level 15

Is gifted real estate treat the same as if it were inherited for calculating capital gains?

Property Received as a Gift

To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

FMV Less Than Donor's Adjusted Basis

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier).

If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property.

Example.

You received an acre of land as a gift. At the time of the gift, the land had an FMV of $8,000. The donor's adjusted basis was $10,000. After you received the land, no events occurred to increase or decrease your basis. If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss.

If the sales price is between $8,000 and $10,000, you have neither gain nor loss. For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain.

https://www.irs.gov/publications/p551/ar02.html#en_US_201412_publink1000257001

Dynamic AdsDynamic Ads
Privacy Settings
v