Capital Gains Tax

[AO4]

My brother and I inherited a house from our late mother a few years ago which we do  not live in.  We want to sell it to my brother's son at a price $200,000 below the the Fair Market Value.  I understand that there is a potential gift tax liability and that I need to file a form 709 with my return this year.

However, is there also a Capital Gains tax liability on the difference between the the sales price and the Fair market Value?    

[Mike9241]

My brother and I inherited a house from our late mother a few years ago which we do  not live in.  We want to sell it to my brother's son at a price $200,000 below the the Fair Market Value.  I understand that there is a potential gift tax liability and that I need to file a form 709 with my return this year.

However, is there also a Capital Gains tax liability on the difference between the the sales price and the Fair market Value?    

assuming each of you inherited 50% of the property then each of you has an initial tax basis of 1/2 the FMV on the date of death.  what was done with the house for the years between acquisition and sale? this can affect how you need to report the sale. 

it is unlikely that you or your brother have used up their lifetime gift tax exemption which is over $10 million.  so you'll have to file a gift tax return (each is gifting more than $15,000) but you wouldn't owe any gift tax.

[Mike9241]

My brother and I inherited a house from our late mother a few years ago which we do  not live in.  We want to sell it to my brother's son at a price $200,000 below the the Fair Market Value.  I understand that there is a potential gift tax liability and that I need to file a form 709 with my return this year.

However, is there also a Capital Gains tax liability on the difference between the the sales price and the Fair market Value?    

[AO4]

This was a rental property for several years.  I understand the gift tax and filing requirements. 

But what I am still wondering about is if there is any Capital Gains Liability on selling the house to my nephew for $200,000 under Fair Market Value.  And if there is not, what is the IRS citation or publication that says so.  Thanks.