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New Member

Capital gain on a gifted home in Washington state

I recently sold a home that was gifted to me by my dad, who is still alive.  Purchase price was $85K in 1998.  My mom passed in 2007 and FMV for that year was $168k.  I received the home in 2012.  I'm getting confusing info on the cost basis for Washington State, which is a community property state.  


I've  heard I need to take 50% of my dads basis  ($85k) and 50% of my mom's stepped up basis,  (FMV of $168K), which would be $126K.  I've also been told I would just use  100% of my mom's stepped up basis of $168k to help determine the gain.  Does anyone have any insight into Washington State real estate capital gains for the situation I'm describing.  Thank you!

2 Replies
Level 15

Capital gain on a gifted home in Washington state

The IRS has their own rules for this, that are independent of state rules, while still respecting the rights of community property states. Without wasting time getting into the particulars and using the numbers you provided (of which $126K is a bit off), your cost basis is $126.5K.

-Mom & Dad purchased for $85K. Dad gifted you his share (50%) so you were also gifted 50% of that, which is $42.5K

When dad passed, only mom's share was passed to you. So if the "ENTIRE" property was valued at $168K when she passed in 2007, half of that is $84K. So 42.5 plus 84K is $126.5K. Any gain over $126.5K is taxable income for you.

Since you owned the entire property as a whole for more than one year, then you don't need to worry about determining the amount of short term gain and long term gain. It's all long term gain.


Level 7

Capital gain on a gifted home in Washington state

Sorry, the prior answer is incorrect.  When your mother died, your father inherited your mother's half of the house, and got to write up the full value since it's a community property state.  His cost basis in the property at that point was $168.  He is still alive and is now gifting you with 100% of the house.  Since his cost basis was $168, that now becomes your cost basis of $168.  He should file a gift tax return but would likely owe no tax on the gift.

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