What are the tax implications for selling a home that was gifted by a relative?

[Scotty-net]

My mother owns a home that I've been living in with my spouse and she has her own primary home.  This home we live in is paid off and we've been there for around eight years.  My spouse and I want to sell the home we live in so we can use the proceeds as a down payment on a larger home.  The down payment is large and cannot be a gift so we need to either have the house put in our name so it shows as an asset belonging to us, or have my mom sell the home while it is still in her name and then gift us the proceeds from that sale...then we wait another six months with the money sitting in our account so the lender can see that the money wasn't just given to us for no reason.  What are the consequences or "gotcha"s that would follow if she just signed the house over to us and we turned around to sell it?  Are there capital gains taxes on that?  The house was originally purchased for $350,000 back in 2006 but can only be sold for around $280,000 in today's market.  We live in Arizona.

[view2 · Accepted solution]

Under federal gift tax rules, the recipient of a gift takes the donor's tax basis. So your capital gains tax basis will be whatever the tax basis was immediately prior to the gift. [no loss recognized]

A Form 709  will need to be filed by  the donor to a recipient  that exceeds the annual exclusion amount.

[Scotty-net]

So in my example where my mother originally purchased the home at $350,000 and gifts it to us - would the tax basis for the home be $350,000?  And if we immediately turned around and sold it for $250,000, would there not be any capital gains tax on the sale?

[view2]

To figure out the basis of property you receive as a gift, you must know three amounts:

    The adjusted basis to the donor just before the donor made the gift to you.
    The fair market value (FMV) at the time the donor made the gift.
    The amount of any gift tax paid.

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 loss when you dispose of the property

Property (Basis, Sale of Home, etc.)

<a href="http://tinyurl.com/oolkr6s" rel="nofollow" target="_blank">http://tinyurl.com/oolkr6s</a>

[lirevaso]

when a house is gifted, does the donor have to pay taxes on the value of the house?

[SweetieJean]

No.

[lirevaso]

but she still has to file a gift tax form, right? if so how much would be the taxes she would have to pay

[SweetieJean]

She must file a gift tax return, but no taxes are due unless the value is upwards of $5 million.
<a href="https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/..." rel="nofollow" target="_blank">https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...>

[lirevaso]

oh I got it and what about the tax consequences for the receiver. Does he have to pay taxes on the house when he sells it even though he would use it as his primary residence for more than 2 years before selling it?

[SweetieJean]

Read the information above, then see this:
<a href="http://www.irs.gov/pub/irs-pdf/p523.pdf" rel="nofollow" target="_blank">http://www.irs.gov/pub/irs-pdf/p523.pdf</a>