Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
curious4913
Level 3

How to calculate adjusted cost basis when gifting a real estate

If I am not wrong recipient's cost basis is  adjusted cost basis of donor on the date of receiving such property.

But how does donor calculates this adjusted cost basis particularly when house was purchased 10 years ago by said donor and he made various improvements by himself and paid cash for help most of the times. 

Now the fair market value is almost 4 times than he originally purchased. But unless donor can give a detailed proof of improvements ..recipient's cost basis will always  be donor' original purchase price 10 years ago??

6 Replies
tagteam
Level 15

How to calculate adjusted cost basis when gifting a real estate


@curious4913 wrote:

If I am not wrong recipient's cost basis is  adjusted cost basis of donor on the date of receiving such property.

But how does donor calculates this adjusted cost basis particularly when house was purchased 10 years ago by said donor and he made various improvements by himself and paid cash for help most of the times. 

Now the fair market value is almost 4 times than he originally purchased. But unless donor can give a detailed proof of improvements ..recipient's cost basis will always  be donor' original purchase price 10 years ago??


That is correct; the recipient's (donee's) basis will be the donor's cost basis and the recipient takes the holding period of the donor (long term in this case). Note that if the fair market value is less than the adjusted basis at the time of the gift, then that is taken into consideration upon a disposition of the property.

 

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

 

You will have to re-create (somehow) a record of improvements made, but note that you cannot include the value of your labor or the original homeowner's labor, only the cost of the materials.

Anonymous
Not applicable

How to calculate adjusted cost basis when gifting a real estate

it's the donor's responsibility to provide cost basis. in the real world say a person sells their home,   as a tax return preparer we'll ask for cost basis.  some times TP will provide every single document at other times just a number.   if they only provide a number, we have no responsibility to verify it unless we  believe that what they provided is unreasonable.  .      we do warn them, that if audited, they could have issues if adequate support is lacking.   

tagteam
Level 15

How to calculate adjusted cost basis when gifting a real estate


@Anonymous wrote:

it's the donor's responsibility to provide cost basis...


One would think that, with something like a house, the annual gift tax exclusion would be exceeded and, hopefully, a gift tax return (Form 709) would have been filed. The donor's adjusted basis should appear on that form.

curious4913
Level 3

How to calculate adjusted cost basis when gifting a real estate

Well donor/owner has not kept any receipts of any improvements ..how can he/she prove about improvement or IRS does not even care ?

curious4913
Level 3

How to calculate adjusted cost basis when gifting a real estate

If audited what kind of proof a home owner provide? home owner has purchased most of the items in cash either on Craigslist or similar ...someone said labor is not included in adjusted cost basis ..just material....I am really confused how to documents improvements for adjusted cost basis in case of anticipated audit?

curious4913
Level 3

How to calculate adjusted cost basis when gifting a real estate

You said 'We do warn them, that if audited, they could have issues if adequate support is lacking.  '

 

If it gets audited and we could not provide adequate support to amount of cost basis I have given to donee - what are the consequences or penalties ? 

It is highly likely that I will not be able to provide adequate support because I dont have documentations of improvements as many of them I have done myself and even  material is bought on craigslist etc. without receipt.

So lets say I given 200k which is tax assessed value for this year but IRS audits and say nope because u dont have supporting docs we will go back to when you purchased and it was only 75k so...they will ask to use 75k or they will ask for penalties and punishment ? if penalty .what is the penalty? remember not providing supporting docs is one thing and doing intentional is another thing(i.e. crime)

Dynamic AdsDynamic Ads
Privacy Settings
v