@Christine Hope wrote:
Thanks for the response. The old house and property were bought jointly by my parents in 1960. In 1980 my father died so my mother then owned the house. IN 2000 she gifted the house and property to her 4 children in equal shares. We sold the house and property in 2021 and divided the profit. The original purchase price in 1960 was $3200. The total sale price minus commissions etc was $25,000. Improvements over the years included painting the metal roof and replacing parts to a pump, fixing broken windows. Total cost $500
In 1960, your mother's basis was $1600 and your father's basis was $1600. When your father died in 1980, your mother inherited his half of the house with a stepped up basis equal to half it's fair market value at the time. Let's say for this example that the value was $10,000 in 1980, so your mother's basis was then $6,600 ($1600 plus $5000). You may be able to get an estimate of the 1980 market value from a real estate agent.
If the home is located in a community property state, your mother inherited a full stepped up basis equal to the fair market value in 1980.
Improvements that add to the cost basis are things that increase the value of the home or extend it's useful life. That would include a new roof, furnace, and so on, but not repairs, because repairs just maintain the property as-is and don't increase its value. If you didn't make any other improvements and the house was never used for business or a rental, then you can stop the basis calculation at this point. The only significant factors are the purchase price and the effect of your father's passing.
Once your determine your mother's adjusted cost basis taking account of the effect of your father's death, then each sibling now reports 1/4 the cost as their basis and 1/4 the sales proceeds minus commission as their sales proceeds, and the difference is the taxable capital gains.
