@Member_Nine12 , just to clarify a little of what @tagteam is saying with an example:
(a) Husband and wife owned a house which they had bought for 100,000. They ;live in a non-community prop state
(b) Husband passed , left the house to the wife, and on the day of his demise the house has an FMV of 200,000
(c) Wife's basis in the house is now 150,000 ( her 50 plus his 50 augmented by his step-up half the gain = 100)
(d)Now wife decides to co-own the prop with her two children on a 10, 45,45 basis and in a revocable trust.
(e) five years later she decided to sell ( the children agree to this )
(f) With no improvements etc. the basis split between the parties is as follows -- mother -- 15,000, the two children each with 67,500.
(g)If the property netted 300,000 after allowable expenses, the gains would mother -- 30,000 less 15,000 = 15,000; each of the children 135,000 less 67,500 = 67,500 and will be taxed on this gain.
Does this make sense ?
You will have to provide more details and, most likely, contact the party responsible for issuing the 1099-S.
Neither a gift nor an inheritance constitutes a "sale".
Hello,
Thanks for the response. So in 2017 during estate planning, property was deeded "tenants in common" with mother (living trust), brother and daughter with the intent the property could be used after mother's passing. Fast forward, the property was just sold with mother still alive. At closing, brother and daughter received 45% of gross proceeds and mother received 10%. Although, the closing attorney indicated the total amount of gross proceeds on each 1099S, mother, brother and daughter. It seems the capital gains will be 15% but of what? Each pays 15% of the gross per their 1099S (effectively paying 45% of the gross to the IRS) OR pay 15% of the proceeds each received? 10%, 45% and 45%? I do realize "cost basis" will also factor but left it out to simplify the question.. any info will be greatly appreciated.. thanks
Keep asking questions but, for now, you will report your share (45%) of the gross proceeds.
If you have a gain (which I presume), then you will use a carryover basis (i.e., your mother's adjusted basis).
@Member_Nine12 , just to clarify a little of what @tagteam is saying with an example:
(a) Husband and wife owned a house which they had bought for 100,000. They ;live in a non-community prop state
(b) Husband passed , left the house to the wife, and on the day of his demise the house has an FMV of 200,000
(c) Wife's basis in the house is now 150,000 ( her 50 plus his 50 augmented by his step-up half the gain = 100)
(d)Now wife decides to co-own the prop with her two children on a 10, 45,45 basis and in a revocable trust.
(e) five years later she decided to sell ( the children agree to this )
(f) With no improvements etc. the basis split between the parties is as follows -- mother -- 15,000, the two children each with 67,500.
(g)If the property netted 300,000 after allowable expenses, the gains would mother -- 30,000 less 15,000 = 15,000; each of the children 135,000 less 67,500 = 67,500 and will be taxed on this gain.
Does this make sense ?
pk.. yes understood and thanks for clarifying. The basis will play a big part and will be the next big issue to resolve so I left it out. The property was purchased and a custom home added many many years ago so the basis will need to be determined as no building records are available. I was told this type of transaction will not allow using a "step up" basis from 2017 when the deed was modified because in this situation the property would be a gift not inherited like originally planned. So right now (before basis realized) the worst case on the tax burden is 15% of 45% of the proceeds. No where to go but up I guess.. again thank you..
@Member_Nine12 wrote:
The property was purchased and a custom home added many many years ago so the basis will need to be determined as no building records are available.
Just be cognizant of the fact that you will have to have some sort of documentation with respect to the basis if you are ever questioned.