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Parents gifted us their house for $1. Both passed away in 2016. We have since sold the house. How do we determine cost basis ?

 
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3 Replies
Coleen3
Intuit Alumni

Parents gifted us their house for $1. Both passed away in 2016. We have since sold the house. How do we determine cost basis ?

What year did they gift you the property and was it ever your primary home for two out of five years prior to date of sale?

The basis of a gift is the Adjusted Basis of the donor at the time of the gift. I am assuming that the Fair Market Value was higher and that they paid no gift tax. If neither is true see below.

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. . 

FMV Equal to or More Than Donor's Adjusted Basis

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. See Adjusted Basis earlier. . 

Gift received after 1976. If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Figure the increase by multiplying the gift tax paid by a fraction. The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 

Parents gifted us their house for $1. Both passed away in 2016. We have since sold the house. How do we determine cost basis ?

Here are more details:

In 2001 we met with an attorney and had our parents house transferred to myself and two siblings. A new deed was drawn up. The "consideration" on the deed is $1(basically they sold it to us for a dollar which is why I used the term "gifted. This may not be the correct term). My parents had a permanent lease that was drawn up at the time of the 2001 closing that allowed them to stay in the house. My father passed away in 2013.  My mother moved into an assisted living center soon after and never returned to the home. She passed in 2014.  We have sold the house in 2016. I need help determining cost basis. I have tabulated all improvements that may be applicable to the cost basis between 2001 and 2016. I have seen similar questions to Intuit/Turbo Tax that seem to indicate we can either use the fair market value or my parents adjusted cost basis at the time of the 2001 transfer. I am concerned that using the $1 as the starting cost basis may be totally wrong and costing me additional capital gain taxes that I shouldn't otherwise be paying. Any help on this would be greatly appreciated. I have been using TurboTax since around 1998.   Thanks.
Coleen3
Intuit Alumni

Parents gifted us their house for $1. Both passed away in 2016. We have since sold the house. How do we determine cost basis ?

The FMV is used for an inheritance. Yes, using $1 will give you a tremendous gain. If you and two other siblings received the gift, you would split the basis, improvement cost and sales price three ways.
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