My Mother gifted her house to me and my brother and it was sold in 2023. She only paid $14,000 and the capital expenses were $71,000. What is the cost basis for each?

[bmiller0720]

She owned the house for 28 years as the time of the gift!  We owned the house for 2 years before selling.

[Anonymous_]

What do you mean by "capital expenses"?

Do you mean improvements you and your brother made after the gift? 

Typically, you and your brother would have a carryover basis (i.e., take your mother's adjusted basis) which would be $14,000 divided between you and your brother (equal shares being $7,000). However, your mother most likely made improvements to the property during her 28-year span of ownership so you should look for any records relating thereto.

[bmiller0720]

Thank you for the quick response!  We were able to establish improvements of $71,000 over the course of the 28 years that she owned the house.  So, I am thinking that our cost basis is $42,500 for each of us, but wanted to make sure.  

[Anonymous_]

Yes, total of $85,000 divided by two. 

[rjs]

@bmiller0720 

Was your mother still living at the time that you sold the house? I think @Anonymous_ is assuming that she was. If she was not, did she continue to live in the house after she gifted it to you and your brother? Did the deed naming you and your brother as the owners give your mother a life estate?

[bmiller0720]

Good Afternoon:

Yes, my Mother is still living and we did have it written for her to have  use of the property as long as she lived.

She is very old and ill and I had to move her to Florida (closer to me) and the house was in GA!

At the closing, she had to sign a quit claim deed!  Does that change anything in the way I have to report the sell on my taxes?

[rjs]

Was the quitclaim deed at the closing to you and your brother or to the new owner? If it was to you and your brother, I don't think it changes anything. If it was to the new owner it might make a difference. @Anonymous_ might know more about this than I do.

[Anonymous_]

Yes, the mother obviously retained a life estate (of some type, depending upon state law). 

However, it matters as to how the deed was drafted when the brothers received a share (which, presumably was one-third between the three). If that were the case, then the mother would be entitled, by default unless provided otherwise, to a share of the proceeds from the sale.

Of course, the brothers could report the entire amount of the proceeds from the sale (one-half each) if that was the prior arrangement.