How do I calculate Cost Basis on a gifted property which I sold.

[JohnW15 · Accepted solution]

There are various scenarios that might apply to you in determining the basis of your gifted property, and they depend on the gift's

• Adjusted basis to the donor just before it was given to you,
• Fair Market Value at the time it was gifted to you, and
• Any gift tax that was paid on it.

Please see "Property Received as a Gift" on page 9 of IRS Publication 551, Basis of Assets for guidance on how to compute your basis in various scenarios that might apply to you.

[YZWORLD777Y]

Childhood home in name of family trust with mom & step-dad as trustees.  Mom dies and house stays in trust with step-dad as everything passes to him & he decides to gift house to my sister and I since mom passed.  Mom bought house in 1970 for $10,000 (with our biological father who then divorced and mom awarded house) and tons of repairs over the years and then marries step-dad in 1994 and then transfers house out of her name & into their trust in 2004 where they are joint trustees.  FMV when mom passed in 2020 around $195,000.  When step-dad gifts to us in 2021, FMV around $225,000.  Unsure of anY gift taxes paid by him to IRS (btw- house has been used as a rental for 25 yrs and is currently rented if that matters).  If we sell, how do we calculate (gains) for taxation?  Also, are there options to reduce taxation if we do an 1039 exchange with either of our sale proceeds for myself or my sister?  Or could one of us buy-out the other to reduce taxation?  Looking 4 options but most likely sell.  Thank You!

[Critter-3]

This would be best answered by sitting down with a local tax pro to discuss all your options in this complicated situation.  Find out if Dad actually paid any gift tax when he gifted the property to you and what his basis in the rental was and  then make an appt with a local person for a face to face meeting. 

[YZWORLD777Y]

Thanks! 

[YZWORLD777Y]

Going to just sell the house.  However, step dad doesn't know or understand adjusted cost basis.  Mom just added it to the Trust after they were married. He was thinking it's just FMV when mom passed.

[ThomasM125]

If your step dad took possession of the house because he was the beneficiary of the trust, then his basis when he received it would be the house's fair market value, which is $195,000 in your case. When he gifts it to you, your basis would be the $195,000 less accumulated depreciation that was available, whether taken or not, during the years it was rented out after your Mom died, plus any improvements made to the property and any gift tax paid when it was gifted.

When you sell the house, you report the sales proceeds less your basis and the difference is capital gain income, unless you rent the house, in which case some of the gain may be ordinary income, because of the depreciation taken. Your basis upon your sale is your original basis when you took possession of it, less depreciation available during the time it was rented, plus the cost of any improvements made.

A like-kind exchange would let you defer tax on any gain, but it is a complicated and potentially costly exercise and would entail acquiring a new rental house. Since you are related, it would be difficult to structure a sale between the two of you that would generate a tax benefit, as the purpose of it would be solely to save taxes, which isn't normally allowed.

[YZWORLD777Y]

Thank You So Much! That Wast Thought!!!