How do I calculate the basis on a property by quitclaim deed and rights of survivorship.

[jaynjude]

My father named myself and my sister, along with himself on a quitclaim deed for his home in 1997 (he did this without our knowledge).  The house was originally purchased in 1979 for $59K. This summer when dad passed away my sister and I became the owners of the property through right of survivorship we sold the property for $205K.  We don't know what the house was worth in 1997. Is this still considered a gift and how do we calculate the basis?  

[PaulaM · Accepted solution]

Part of your basis is considered a gift and part of it will have a inherited stepped up basis. You will have to do some research to arrive at a fair approximation of the fair market value (FMV) in 1997 when it was gifted. County records for assessments and sales would be a good place to start, or a realtor may be able to help.

Each person initially has a 1/3 share of the original basis in 1997.  After your father's passing, you and your sister each have a 1/2 share in your father's portion.

Each of you add to the cost basis of your share, the 'stepped-up' basis of the inherited portion. 

Ex: Home's  FMV in 1997 = $180,000  Each has a cost basis of $60,000. Father then passes. The fair market value of his share is now $80,000 (stepped up value). Now the remaining owner's add 1/2 or $40,000 to their original basis of $60,000 for a total basis each of $100,000.

Each report their new basis and proportionate (1/2) share of the sale proceeds on their tax return to compute gain. Enter under the investment section. To navigate to the section:

• In your open return, select Tax Tools
• Tools
• Topic Search
• Type 'investment sales' in the box, then select GO

On the page, Choose the type of investment you sold, select the radio button for 'everything else' and continue to enter the property information and your proportionate share of the sale proceeds. 

On the page, Tell Us How You Acquired This Home, enter how you acquired the home and continue with the interview. Gain/loss is computed and moved to appropriate form for your proportionate share. 

Note: If you received a 1099-S for the sale of the home, make certain the proceeds are recorded for your share only. If not, contact the payer for a corrected form.

[tgrosvenor12]

Is this accurate?  Since it would be a gift in 1997, would it actually have a step up basis to FMV?  Or would the original cost basis carryover?

[tmwtaxcpa]

The recipient of a gift gets NO STEP UP IN BASIS TO FMV. Fair market value is irrelevant to a gift recipient (unless sold at a loss).  The basis received in a gift is the giftors basis. A difficult proposition as it needs to be determined as if Dad sold his property in 1997 and was calculating his basis. THAT is what he gifted to the recipients. 

Again - a gift gets no step up in basis. FMV is not to be used. 

The basis of the remainder acquired at Date of Death is stepped up to FMV at DOD.