Gifted a home from father for $1, he did not pay gift tax, I have reviewed the TurboTax and IRS documents, still not sure

[ddsnyder]

Facts:

Parents purchased this home in 1967 for $16500 + closing costs

My father gifted this home to me for $1 in 2004 after my mothers' passing

My father lived in this home as a lifetime tenant until his passing in 2016.

The house has remained vacant until 2022, when it was sold

In 2022, I sold the home for $150K

Since 2004, I have updated/repaired elements of the interior/exterior and utilities to prep the home for sale.

I have been using IRS pub 523 for guidance as well as TurboTax program help dialogs, but am not sure how to proceed. I have kept good records of home updating so I know what I can deduct.

Do I use the original price of the house from 1967? or determine FMV from 2004? as basis to calculate gains?

[MinhT1]

As this was a gift, your cost basis is the cost basis of your father (his original price plus closing costs).

To this, you can add the costs of improvements to the house that you paid. And this would be your cost basis at the time you sold it.

[tagteam · Accepted solution]

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@ddsnyder wrote:

My father lived in this home as a lifetime tenant until his passing in 2016.

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If your father had a life estate (expressed or implied), then your basis would be the fair market value on the date of his passing in 2016. 

See https://www.law.cornell.edu/cfr/text/26/20.2036-1

Clearly, you would most likely want to take the position that your father retained a life estate since that would give you a basis that would be stepped up to FMV in 2016 (the date of death of the life tenant).

[ddsnyder]

I see your point, in the deed dated 9/21/2004, there is a clause stating:

" SAVING, EXCEPTING AND RESERVING unto Fathers Name, first party, the right to use, occupy and enjoy the said premises for and during his lifetime"

and the house insurance had listed my father as "lifetime tenant"

Thank you, all that remains is determining the FMV near 10/2016, which should not be that difficult