Selling my house and do I need to report it

[Lilbunny13]

I live in South Carolina. I will selling my house (I live in it.) I have lived in this house my whole life but bought it from my mom 4 years ago. I understand the federal tax laws when it comes to selling my house and reporting. But when it comes to the rules of reporting it in SC I am confused. I know I will have a gain on my house as I bought the house for a $1. But still confused on where I will owe taxes on it at the state level or not.

[Mike9241]

see a tax pro.  unless the house was really only worth $1, extremely doubtful, your mother made a gift of equity to you and should have filed a gift tax return. 

your basis is her basis + any subsequent improvements made by you.

on the date of the gift, you need to know both her basis and its fair market value (FMV).

if the FMV was greater than her basis, then you have a gain if the selling price exceeds her basis + the subsequent cost of improvements you made and is eligible for the home sale exclusion. any loss is not deductible.

If FMV on date of gift is less than basis, then your basis for gain is her basis + the cost of your improvements.

your basis for computing loss is FMV on date of gift + the cost of your improvements.

so if one way ends up with loss and the other way ends up with gain you have neither for federal tax purposes.

example FMV and tax basis include your improvements.

FMV = $60,000

tax basis = $90,000

sell for over $90,000 you have a gain for federal tax purposes eligible for home sale exclusion.

sell for between $60,000 and $90,000 you have neither a taxable gain nor loss.

sell for less than $60,000 you have a non-deductible loss.

[Lilbunny13]

I am pretty sure she did not do the gift tax thing. And I get what you are saying but still do not understand. But thank you for replying though.

[Opus 17]

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@Lilbunny13 wrote:

I am pretty sure she did not do the gift tax thing. And I get what you are saying but still do not understand. But thank you for replying though.

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See an attorney or tax specialist.

If you got a 1099-S at the closing, you must report the sale even though it might not be taxable, because the IRS will be trying to match that form to your tax return and if it is missing, they will send you a letter and a bill.

If you did not get a 1099-S, and your gain is less than $250,000 for a single person or $500,000 for married filing jointly, you don't have to pay capital gains tax (because you lived in the home more than 2 years out of the last 5 years and you owned it more than 2 years).  

Your gain is the difference between the selling price and your cost basis.  Generally, your cost basis in a piece of property is what you paid for it.  But because this home was partly a gift, cost basis will be more difficult to figure out.  

If the selling price is less than $250,000, then your gain must be less than $250,000, even if you report your basis as zero, and the sale won't be taxable.

But if the selling price is more than $250,000, you will need to do some investigation to determine what your proper cost basis should be.  Since you seem unsure of the situation, I suggest finding a tax advisor or attorney to assist you.  If you are audited, and can't prove the cost basis to the satisfaction of the examiner, they can tax the whole sale. 

[Hal_Al]

SC follows the federal rules on the sale of you primary home.  So, the first $250,000 ($500K Married filing jointly) of you gain is not taxed (excluded). Reference: https://www.listingsincharleston.com/blog/2022/9/19/south-carolina-real-estate-capital-gains-tax-exp....

As others have said, your cost basis is not $1. It's your mother's cost basis*.

"Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, for your mother, for 4 years ago, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.
See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...   

*There is an exception to your cost basis being her cost basis, if the house was worth less then her cost basis, on the date of the gift.  But the exception seldom applies.