Second Home Cost basis given as a gift (from a house that was built by parents)-Capital Gains

[VTCATS]

I sold my second home last year.

This home was originally built by my parents back in 1986 (I lived in it as well back them) It was Gifted to me in 2008.  There are NO records at all anymore from when they built it, other than what the Property Tax department has (date my name was put on the deed and I believe the tax bill showing housesite value).

HOW do I determine the cost basis?? 

[tagteam]

You can still, most likely, get an appraisal from a licensed real estate appraiser for the 1986 period.

Further, there may be some records in one of the county offices, such as recorder of deeds, et al.

[VTCATS]

Thanks.  But also, to verify, from the IRS's website, below is the part I also have a question about.  Given the gift will definitely be greater, MY adjusted cost basis will be at the time "just before the donor made the gift".

So from that I read, it's not 1986 I should be looking at, but 2008 when it was gifted.  Can anyone confirm?

If the FMV of the property at the time the donor made the gift is equal to or greater than the donor's adjusted basis, your adjusted basis is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.

[tagteam]

---

@VTCATS wrote:

So from that I read, it's not 1986 I should be looking at, but 2008 when it was gifted.  Can anyone confirm?

If the FMV of the property at the time the donor made the gift is equal to or greater than the donor's adjusted basis, your adjusted basis is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.

---

Yes, I can confirm; you read the passage you cited wrong.

Since the FMV is greater than the donor's basis, your basis is the donor's adjusted basis just before the donor made the gift. 

The forgoing means you take the donor's adjusted basis and not the FMV in 2008.

Note, however, that if you happened to sell the home at a loss (which is highly unlikely), only then would you use the FMV on the date of the gift to calculate the extent of your loss.

[JamesG1]

tagteam is correct.

IRS Publication 551 Basis of Assets, page 9, here states:

To figure the basis of property you receive as a gift, you must know its adjusted basis (in most cases, the cost) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it.

And this

If the fair market value (FMV) of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid,

Your basis is the donor's adjusted basis when you were gifted the property in 2008 plus any gift tax paid.

[VTCATS]

Thanks for the interpretation.  Writing, "JUST BEFORE" is super misleading.  They could have simply said you take the donors adjusted basis...PERIOD.  Regardless, thanks for the info

[tagteam]

---

@VTCATS wrote:

.......Writing, "JUST BEFORE" is super misleading.  They could have simply said you take the donors adjusted basis...PERIOD.

---

Agreed, but then the verbiage is from the instructions and/or other IRS publications and materials (which have not only been misleading on occasions but just plain wrong on a few).

The Code is actually much clearer on this issue.

See https://www.law.cornell.edu/uscode/text/26/1015

(a) Gifts after December 31, 1920

If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value.

[VTCATS]

One other question.

When entering into Turbo Tax (given it's a second home, its under Investment income) it only asked proceeds from the sale, which I assume was the SALE PRICE.  It didn't give me an opportunity to enter all of the things paid for represented in the 1099-S (such as closing fees, legal fee's etc). Can I deduct those fee's manually and then enter in my adjusted SALE PRICE, or is that not allowed?

[RobertB4444]

After you enter in the sale price it should ask for 'expenses of sale'.  This is where you enter in the costs associated with the sale as well as any costs that you had preparing the home to sell it.  Then it will ask for your basis in the home and that is the amount that you paid for the house originally.  The system will net all of that out in order to arrive at your taxable income.

@VTCATS 

[VTCATS]

It didn't but when I clicked on "learn more" next to proceeds, it mentions to enter that in under sales expense which it then asks on the next page. I missed that part.  Thank-you

[tagteam]

The following is a guide (of sorts) of what you can deduct as selling expenses.

https://www.irs.gov/publications/p523#en_US_2023_publink1000131454

Note that expenses to prepare the home for sale (i.e., fix-up expenses) are not deductible as selling expenses.

[VTCATS]

VERY helpful link. THANK YOU!!   

Appreciate your time.

-Mike