Unfortunately, placing your name on the deed is usually considered a gift. It depends on how exactly he deeded the property
- If the deed was placed in your name as the only owner, the cost basis you will use for the sale is the gift basis (this is equal to the price your father paid for the home plus the cost of any improvements).
- If the deed was placed in a living trust with you as the trustee, then the inherited cost basis of the fair market value on the date of his death would be applicable.
- If the deed was placed in both of your names, you would have to use a gift basis (mentioned earlier) on the half of the property that was deeded to you and the inherited basis on the half that was inherited after your father passed away.
To figure out the fair market value on the date of his death, you can use the following:
- If the sale occured within a few months of his passing, you can usually reasonably rely on the selling price of the home as the inherited basis (usually resulting in no taxable gain).
- If the sale happened a year or more after his death, you will either need to use an estate appraisal from an estate value (most smaller estates don't do this) or you may need to use a combination of property tax appraisals and/or information from local realtors or real estate appraisers about the market conditions around the time that he died to estimate the inherited basis (for the IRS you need information that documents how you make an estimate.
If the home was fully deeded to you, the basis is your father's basis in the property when he passed away.
