cost basis for gifted property

[Nancy1010]

Property bought by parents for $5000 (also was fair market value at that time). Gifted to me years later when fair market value was $24000. I sold it later for $16000. What is my cost basis?

[tagteam]

See https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...

Since the fair market value at the time of the gift was greater than the adjusted basis, you would use the donor's adjusted basis to figure any gain or loss.

[Nancy1010]

So what is the adjusted basis for the donor? Is it $5000, what they paid for the property? How is the adjusted basis for the donor different than the basis for the donor?

[ToddL99]

The cost basis for the donor was $5000, what they paid for the property.  There will only be an adjusted basis If the donor had made improvements to the gift or had claimed depreciation on the gift, prior to making the gift. 

In that case, the adjusted basis would be the amount paid plus any improvements less any depreciation. This is most common when the gifted property is rental real estate or a personal residence.

[Opus 17]

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@Nancy1010 wrote:

So what is the adjusted basis for the donor? Is it $5000, what they paid for the property? How is the adjusted basis for the donor different than the basis for the donor?

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If this was real property (real estate), the adjusted basis would include any improvements (if you know their cost) and you must subtract any depreciation (although depreciation can't be claimed on land itself, only on structures attached to the land).

In some cases, your parents might have chosen to capitalize their carrying costs, such as property taxes and other fees, instead of deducting them.  Capitalizing the carrying costs must be done by attaching a written statement to their tax return for each year that they capitalized costs. If they capitalized costs and can show you the tax returns, that will also increase the adjusted basis.

[tagteam]

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@Nancy1010 wrote:

So what is the adjusted basis for the donor? Is it $5000, what they paid for the property? How is the adjusted basis for the donor different than the basis for the donor?

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If purchased from an unrelated third party, the donor's adjusted basis is the donor's cost (purchase price, what they paid for the property) plus capital improvements less any casualty loss and depreciation deductions. 

Since the time you owned the property, your adjusted basis is a carryover from the donor plus any capital improvements you made less any casualty loss and depreciation deductions you claimed.

[Nancy1010]

This property was a lot that was part of a subdivision run by an association. The lots are around a pond which is maintained by the association (as well as the roads around the pond and to/from the lots). There were assessments paid almost every year by my parents (as well as by us once we were gifted the property) for maintenance and repair of the roads and the pond (these were special assessments in addition to a yearly homeowners association fee paid). Can these assessments that were paid be included in the adjusted cost basis?

[Opus 17]

Only if they were capitalized in writing as an attachment to your parents’ tax returns for each year that they owned the property.  Otherwise, no.  

If part of the assessments paid for improvements, that adds to your cost basis if you can prove the amount.  An improvement would be something that is permanently attached to the land and which increases its value, such as maybe a new sidewalk, or new landscaping or lighting.  Repairs and maintenance to the existing property and its existing attachments are not improvements.

[tagteam]

You can add special assessments to pay for capital improvements to your basis.

See https://www.irs.gov/taxtopics/tc503

[ToddL99]

Assessments made for permanent improvements to the common property (e.g. storm sewers, drainage ponds, play grounds, etc.) can be included in the cost basis of your individual lot.

Assessments made for repairs, maintenance and HOA fees cannot be treated as increases to your cost basis.