I was joint tenant w/ mom for her house 20 yrs. She moved to assist living 2014; I moved in in 2014. She died 2016. I sold 2017 after 3 yrs there. How to calculate basis?

[HubertW]

I believe I should use the FMV on the date of her passing as the starting point for calculating the basis. Is that correct? If not how?

[Anita01 · Accepted solution]

Only the half you inherited would be valued at FMV at the time of her death.  The cost basis in the other half would be determined by when you became the joint owner.

If you were joint tenants with your mother from the time the house was purchased, then 1/2 of your cost basis would be 1/2 the original purchase price plus 1/2 the cost of any improvements done over time. 

If your mother added you to the deed at some time after purchase, then your share was a gift and 1/2 your cost would be based on her original purchase price plus improvements

[HubertW]

She and my father purchased the house in 1955 for $25,000 and I've got no idea what the FMV was in 1999 when I was added to the deed. How can I estimate the 1999 FMV?

[Hal_Al]

The fair market value in 1999 is not relevant. Your cost basis is $12,500 (half of 25,000) + half the FMV in 2016.

[Hal_Al]

Did you father die or was he divorced from your mother. If you father died, you mother inherited his half at a stepped up basis. If that was 1999, then yes you do need that FMV

[HubertW]

He had passed away. This , along with your other reply is exactly what I needed to know. Thank You!

[Hal_Al]

The capital gain on the sale of your primary home is not taxable (up to $250K, $500K married). To be eligible you must have lived in and owned the home for at least 2 out of the 5 year prior to sale. You do not even need to report it on your tax return, unless you got a tax document, usually a 1099-S. The 1099-S may have been included in your closing documents.

[Opus 17]

Are you sure this is correct? If the taxpayer' parent was joint tenants with right of survivorship, I believe the IRS allows a full stepped up basis. If the parent had the right to sell the house or do anything else with with it, due to the survivorship right, then I believe the IRS takes the position that they did not really own it until they inherited it and therefore they get a stepped up basis.

[Hal_Al]

Good point. The usual rule, for a gift, is that the recipient's basis is the giver's basis (what your mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (see<a rel="nofollow" target="_blank" href="http://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est...> which states in part "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")
More info: <a rel="nofollow" target="_blank" href="http://www.law.cornell.edu/cfr/text/26/20.2036-1">http://www.law.cornell.edu/cfr/text/26/20.2036-1</...>

[Opus 17]

@user38615

If the total sale price is under $250,000, then you do not have a taxable gain since you owned the home and lived in it for more than 2 years prior to selling, and no matter what the basis was, your gain must be less than $250,000.

If the sales price was more than $250,000, then we need more information to determine your gain.

Specifically: 1. exactly what was the form of the deed when you were added as a homeowner.  Was it "in fee simple", or did your mother retain a "life estate"?  You may need to look at the transfer paperwork from 1999, which will be on file with your county.  "Life estate" has many similarities to "joint tenant with right of survivorship" but may not be identical.  You may need an opinion from a real estate attorney in your state.

If your were "joint tenants" then each of you had the right to sell their half of the property without the permission of the other; you were an equal co-owner.  However, if your mother had a "life estate" that means that you could not sell your half without her permission.

If your mother had a "life estate" then you inherit a fully stepped up basis to the day she died in 2016.

2. if your mother did not have a life estate, then to figure out your basis, we need to know when your father died, since they owned the home together.  Was it before or after you were added to the deed?  And when was it?